Posted on January 30,
Chevron's Fight with Richmond
R. Baker, Chronicle Staff Writer
Greg Karras has heard the talk about Chevron
Corp. possibly pulling out of Richmond. He isn't buying it.
Karras is a senior scientist of an environmental group fighting
Chevron's plan to upgrade its Richmond refinery, which has
occupied a spot on the city's western edge for more than a
To him, recent hints from Chevron executives that they might
leave Richmond unless they get their way ring hollow. Although
they're low right now, refinery profit margins tend to be higher
in California than they are elsewhere in the country, he said.
Chevron isn't likely to sell or close the third-largest producer
of gasoline in the state.
"It's not going to happen - not to this refinery," said Karras,
with Communities for a Better Environment. "Here you've got
the California market, a gold mine for any refinery, and a
new refinery is very unlikely to be built. If it's profitable
to sell gasoline, diesel and jet fuel in California, Chevron's
not going to close the Richmond refinery."
Many of the people sparring with Chevron in Richmond - over
the refinery expansion as well as a $20.5 million tax dispute
- don't believe the company will leave. Some consider the executives'
hints of departure a negotiating tactic. Chevron's announcement
this month that it needs to cut jobs throughout its worldwide
refining operations and possibly sell some facilities didn't
change their minds.
"It seems like they've got something that's working and making
money," said Richmond Mayor Gayle McLaughlin, a frequent Chevron
The City Council, she said, will discuss the possibility that
the refinery could change hands or close. But she doubts either
"We're basically going to look at all the potentialities," McLaughlin
said. "But I do think that because it is a profitable refinery,
this probably won't result in a closure." [emphasis added]
Chevron, based 35 miles away in San Ramon, won't say which
of its refineries around the globe will close or be sold. Those
details will be revealed in March.
Chevron spokesman Sean Comey said the company wants better
relations with Richmond, but the city's business environment
leaves something to be desired.
"The refinery was there before the town was incorporated,
and historically it had been a good place to do business," he
said. "Right now, there's some opportunity for improvement."
Oil companies rarely disclose profits for specific refineries,
lest they give competitors too much information. But in a New
York Times article last fall, the head of Chevron's global
refining operations said Richmond ranked in the "lowest tier
of earnings" among the company's refineries. "Refineries
that don't make money don't stay open," he warned.
And yet, California refineries typically enjoy some of the
nation's highest profit margins. The state uses unique gasoline
blends designed to fight air pollution, and only a small number
of refineries make those blends. Limited competition has, for
most of the past decade, made California the place to be for
Refining industry profits can be tracked, roughly, by looking
at the difference between the price of the oil that refineries
use as raw material and the price of the products that they
make, a measure known as the "crack spread." Last year, the
crack spread for West Coast refineries averaged $14.83 per
barrel of oil. For refineries on the Gulf Coast, it averaged
These days, all refineries are hurting, in California and
throughout the country. The recession has driven down the demand
for gasoline, as Americans try to save money by driving less.
Even with high gas prices, averaging more than $3 per gallon
in California, refineries are losing money. In such a bleak
environment, Chevron might contemplate closing or selling its
Richmond site, said Brian Youngberg, senior energy analyst
with investment company Edward Jones.
"I doubt that they would close it, but I don't think it's
necessarily out of the realm of possibility," he said. "I really
think they're re-looking at their entire portfolio. If they
feel they need to make significant improvements in Richmond,
and they're getting pushback, they might consider it."
Chevron is Richmond's largest employer, with 1,250 people
at the refinery and 1,350 at a research and technology center.
The company's relationship with the community has been turbulent.
In 2008, Richmond voters approved a new tax on the refinery,
based on the value of the crude oil it refines. A judge ruled
the tax unconstitutional in December, saving Chevron $20.5
Another courtroom fight has gone badly for the company. Last
summer several organizations, including Communities for a Better
Environment, persuaded a judge to block the refinery's upgrade
and expansion. The company had not answered key questions about
the project in its environmental impact report, the judge ruled.
Settlement talks between Chevron and the plaintiffs have, so
far, produced no results.
Chevron executives have not explicitly said that the company
would leave Richmond. Instead, in comments to the New York
Times and National Public Radio, they have suggested that if
they can't upgrade the refinery, their relationship with the
city might end in "divorce."
To Karras, those comments sound familiar.
Nearly 10 years ago, owners of another Bay Area refinery embroiled
in an environmental dispute threatened to close their facility.
The Tosco refinery (now owned by Tesoro Corp.) had been ordered
by the San Francisco Bay Regional Water Quality Control Board
to cut the amount of dioxin it released into the environment.
Company executives said the changes would cost too much, and
they threatened to shutter the facility, located near Martinez.
The board backed down. Two weeks later, Tosco announced that
another company, Ultramar, had agreed to buy the refinery.
The sale had to be in the works before the showdown with the
water board, Karras said.
"Lo and behold, the water board granted their request," Karras
said. "It was clearly and obviously an empty threat. It clearly
and obviously put pressure on the environmental agencies."
And yet, California refineries face significant uncertainties
about the future.
As part of the fight against global warming, California is
developing a cap-and-trade system that would put a price on
carbon dioxide emissions. The state also has adopted a "low-carbon
fuel standard" that will force refiners to reduce the carbon
intensity of the fuels they sell. Both will probably prove
expensive for refiners.
If the entire country adopts those measures, refineries throughout
the country would face similar costs. But if the federal stalemate
over climate-change legislation continues and California goes
it alone, refineries in the state would be at a disadvantage,
said Catherine Reheis-Boyd, president of the Western States
Petroleum Association, an oil industry lobbying group.
"We've got companies that are looking at every investment
dollar, every investment and where they're going to make it," she
said. "And I can tell you, California is not at the top of
E-mail David R. Baker at email@example.com.
This article appeared on page DC - 1 of the San Francisco Chronicle