Posted on January 19,
Chevron to Shrink Refining Business, Cut Jobs
By George Avalos
Chevron plans job cuts in its fuel production and retail operations,
a potentially wrenching downsizing that clouds the outlook
for its century-old refinery in Richmond. San Ramon-based Chevron
has been forced into a far-ranging review of its downstream
units — referring to its refinery, retail and marketing operations
— because the economy has toppled into recession, drying up
profits for that business.
"It is very difficult to make money in the downstream business," said
Lloyd Avram, a Chevron spokesman. "The downstream market has
been out of balance for some time."
Chevron notified retail, refining, marketing and transportation
employees through a video message that a downsizing was in
More details were due in March, which could include the number
of jobs that will be lost. An assessment of how downstream
units should be restructured may be complete by September.
The energy giant could sell or close some refineries, or scale
back the retail markets in which it competes as a result of
"It is possible that at some point we could make a decision
to dispose of assets such as refineries," Avram said. "It
is possible and likely that we will exit some markets."
But Chevron emphasized it hasn't made any decisions on what
to do with any refinery, including the Richmond facility, another
in California and one in Hawaii. Still, some Richmond officials
have begun preparing for the possible closing of the refinery.
The City Council is due to meet in February "regarding the
preparation of a contingency plan should Chevron abandon, sell
or downsize operations," Richmond Mayor Gayle McLaughlin said.
The Richmond refinery employs 1,250. The refinery also provides
about $26 million in annual property tax revenue for an array
of public agencies. It accounts for at least 25 percent of
the city's general fund revenue, which would equate to roughly
$36 million in the current fiscal year.
Chevron has 18,000 downstream employees worldwide, including
4,400 in California. Analysts weren't surprised by the move
to restructure and cut refinery and retail operations and jobs.
"Chevron is not making much money in refineries. Everybody
involved in refining is having a hard time making money over
the last year," said Jason Gammel, an analyst with Macquarie
Research, an investment firm in New York.
During the final three months of 2009, Chevron's refineries
lost more than $600,000 a day, according to a Deutsche Bank
As a result of the thin margins, Chevron could be reluctant
to continue operating refineries that are outmoded. That's
a problem that all refinery operators, not just Chevron, must
confront, said Tina Vital, an oil and gas equity analyst with
rating firm Standard & Poor's.
"Companies want refineries that are larger, more nimble and
more flexible, with the ability to handle a wider range of
crude-oil feedstocks," Vital said. "With the recession, a lot
of refineries worldwide will have to permanently shut down."
Chevron is seeking approval to upgrade and modernize the Richmond
refinery. Environmental and legal foes have stymied the efforts.
Union officials said the prospect of downsizing refinery operations
was "unsettling," as Jeff Clark, secretary-treasurer of the
United Steel Workers Local 5, put it. Local 5 represents numerous
union workers at the Richmond refinery.
"We support having clean and safe refineries for our workers
and for our communities. That's a great idea," Clark said. "But
at some point, you have to look at whether all of these environmental
regulations in the Bay Area make these facilities less competitive."
Yet even if the Richmond refinery isn't upgraded to fit in
with the new world of crude oil, that is not a death knell.
"The Richmond refinery is in California, which has some of
the highest refining margins in the world," Vital said.
Plus, the factory is near key markets such as Asia and the