Wednesday, January 14, 2009, "Oil Refineries are Getting Refined" (ConocoPhillips, Chevron Hoping to Boost ProductionH

David R. Baker, Jan 5, 2007.

The Bay Area's aging oil refineries are in the midst of a construction boom that will modernize their equipment and expand the amount of gasoline they produce.

Four of the five local refineries have plans to upgrade. Construction has already begun at two. Coming up with the $200 million or more needed to improve the facilities isn't a problem, thanks to the oil industry's recent record profits.

The projects will be a boon -- but not a panacea -- to California drivers. They will add to the state's gasoline supplies, but not enough to match California's growing demand.

Viewed together, the Bay Area refinery projects could produce an extra 1.1 million gallons of gas per day, or about 2.5 percent of the 43.5 million gallons Californians burn every day. But state officials expect demand for gasoline to grow by about 1.4 percent per year.

California uses a unique blend of gasoline and the state will need to rely more heavily on the few out-of-state refineries that make the fuel.

"We're still going to need imports," said Rob Schlichting, spokesman for the California Energy Commission. "More and more, we're going to need to count on imports."

The refinery upgrades include the following:

-- Chevron Corp. is planning improvements to its Richmond facility that could expand the plant's gasoline production by about 7 percent, Chief Executive Officer David O'Reilly said in testimony before Congress. The company is still seeking government permits for the work and hasn't disclosed the price tag.

San Ramon's Chevron is also upgrading its refinery in El Segundo, in Los Angeles County. That project and the planned improvements in Richmond will increase the company's gasoline production in California by 840,000 gallons per day, a spokeswoman said.

-- ConocoPhillips' Rodeo refinery wants to expand production of gasoline by 791,000 gallons per day, a 35 percent increase, and its production of diesel by 290,000 gallons per day, up 21.5 percent. The company, which like Chevron isn't revealing the project's price, has applied for permits and hopes to have them by March.

-- Tesoro Corp.'s Golden Eagle refinery, near Martinez, will spend an estimated $475 million to $525 million installing equipment that will reduce air pollution and improve the plant's ability to process relatively cheap, heavy grades of crude oil. This project, which has just started construction, won't increase the amount of gasoline produced.

-- Valero Energy Corp.'s Benicia refinery also is upgrading equipment to handle heavier forms of crude. The project, under way since 2004, will cost an estimated $200 million to $400 million.

That emphasis on heavier crude oil alarms some longtime Bay Area critics of the refineries.

Heavy crude carries more impurities and can produce more pollution than lighter grades of oil, said Greg Karras, senior scientist for the environmental watchdog group Communities for a Better Environment. He also questions the wisdom of making large investments in gasoline refining when the world is trying to curb global warming, which scientists blame on the use of fossil fuels.

"Humans desperately need to be switching to making investments now in an alternative energy regime," Karras said. "The absolute wrong thing to do is invest in refining the dregs of the crude until it's gone."

The projects reflect a change in attitude among oil companies.

For years, they closed refineries across the country, both to avoid installing new anti-pollution equipment at unprofitable facilities and to increase the profit margins of the ones that remained.

Oil companies still aren't rushing to build new refineries. But they are putting more money into improving the ones they have, slowly expanding the amount of gasoline they can produce. Refinery profit margins, which have soared in the last two years, are now high enough to make the investment worthwhile, said Jeff Hazle with the National Petrochemical & Refiners Association.

"Companies have changed their viewpoint of what the future looks like," said Hazle, the trade association's technical director.

"It took them awhile to get here, but they now believe the (gasoline market's) tightness, the small difference between supply and refining capacity is going to stay here awhile," Hazle said.

E-mail David R. Baker at

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