A Chevron pipeline that carries up to 85,000 barrels of oil a day from Kern
County to the Bay Area has been temporarily closed, forcing local oil
producers to find alternatives for getting their product to market.
How much the shutdown has contributed to California's sharply higher
gasoline prices remains unclear. Observers note that refineries have been able
to secure adequate oil supplies through alternate means, although others say
the disruption has exacerbated already difficult conditions.
Chevron said it shut down its KLM pipeline Sept. 19 and has since begun
flushing the line to remove "elevated" levels of organic chloride, an oil
field solvent corrosive to oil refineries.
"We are continuing to assess the situation and work toward resolution,
and are not currently in a position to identify any definite impact to crude
volumes," a Chevron spokesman said in a written statement Thursday. It added
that the company is trying to determine how the chemical may have entered its
system.
The pipeline delivers medium-grade crude to Northern California
refineries operated by Royal Dutch Shell, Tesoro and Valero Energy.
The California Energy Commission's senior fuels analyst, Gordon Schremp,
asserted that the closure is "not having any bearing on the price spike"
because the Northern California refineries have been able to compensate by
buying Alaskan and foreign crude. They are also processing reserve inventory
on hand, he said, and turning to two other oil pipelines through the Central
Valley.
"I think the good news is that the California refineries in Northern
California do not depend on this pipeline delivering crude oil," he said.
But Jeffrey Spring, a spokesman for the Automobile Club of Southern
California, said the closure likely did play a role in a "panic" as fuel
wholesalers scrambled this week to buy up as much supply as they could.
"I would say the oil pipeline (shutdown) did have some impact, just on
the fact that it was like the third straw on the camel's back," he said,
noting that two of the state's largest refineries have been at least partially
disabled recently.
Refinery 'poison'
Refiners can accept small concentrations of organic chloride, but at a
certain level the chemical becomes toxic to their facilities, industry
consultant Dave Hackett said. He added that such accidents are rare, and he
had never before heard of organic chloride tainting a California pipeline.
"Basically, it poisons the refinery," Hackett said. "It's serious."
Oil containing high concentrations of the chemical is automatically worth
less money, he added.
"There are a lot of very unhappy folks about this."
He and other industry observers said that until the pipeline reopens,
local oil producers could take a financial hit in terms of higher
transportation costs.
But it remains unclear how much of an impact the closure is having. A
total of five oil pipelines connect Kern County oil fields to refineries --
three running north from Kern and two south.
A local Shell official said Friday that there is sufficient local
pipeline capacity to ship more locally produced crude.
This month Shell reported to its customers that its pipeline carrying
crude out of Kern County was carrying enough oil to operate 24 hours a day. It
was the first time this has happened in recent memory.
Any oil producer unable to tie in to a pipeline has costly options: pay
to have it hauled by truck, store it in a tank farm or, in a worst-case
scenario, reduce or cease production by shutting in wells.
Factors in higher gas prices
Some suggested the closure may be playing at least a small role in the
recent spike in pump prices simply because of the disruption to local oil
sales.
"It's not going to affect what you would call the posted (oil) price. It
may affect a spot transaction where somebody was going to buy a specific
October barrel," said Mark Del Papa, vice president of supply and distribution
at Bakersfield's San Joaquin Refining Co., which is not served by the Chevron
pipeline.
Hackett said the Bay Area would feel any upward price pressure before the
rest of the state because of its proximity to the refineries.
The pipeline shutdown is far from the only factor with the potential to
raise gas prices.
The Associated Press reported that Exxon Mobil Corp.'s Torrance refinery,
the second largest in the state, lost power Oct. 1, though Schremp at the
Energy Commission said power has been restored. Also, Chevron's refinery in
Richmond -- the state's largest fuel processing plant -- has not fully
recovered from a fire in August.
A gallon of unleaded sold for an average of $4.423 in Bakersfield Friday,
according to AAA. That's up almost 13 cents, or 3 percent, from Thursday and
more than 27 cents, or close to 7 percent, above the average AAA reported a
week before.
The statewide average Friday was $4.486, AAA reported.
Adam Gottlieb, a spokesman for the Energy Commission, noted that
wholesale gasoline prices have begun to moderate. He predicted that retail gas
prices will start to come down next week.
