Tuesday, September 11, 2012

Refinery Fire Raises Prices, Lowers Supply

By Mark Edward Nero

When a fire broke out Aug. 6 at Chevron Corp.’s petroleum refinery in Richmond, California, it may have only burned for a few hours, but the repercussions from that blaze are likely to affect the West Coast maritime industry for much, much longer.

Before the fire, the 2,900-acre facility, which is in the San Francisco Bay area, was processing about 242,000 barrels of crude oil daily, with the end products primarily being diesel and jet fuels, as well as gasoline.

The blaze is believed to have occurred after a diesel leak near a pump at the Richmond refinery’s crude oil distillation unit. A combustible hydrocarbon liquid known as “gas-oil” leaked from an eight-inch pipe connected to a crude oil distillation tower in the refinery’s crude unit, according to the federal Chemical Safety Board (CSB), which investigated the incident.

Workers were reportedly in the process of repairing piping connected to the still-operating distillation tower, according to the CSB, when the leak intensified. Due to the high temperature of the material in the tower, in excess of 600 degrees Fahrenheit, the gas-oil immediately formed a large flammable vapor cloud.

Chevron has not confirmed the CSB’s version of the events, nor indicated when the crude oil distillation will restart or at what capacity the remaining units are currently operating.

The fire resulted in no fatalities, but five minor injuries were reported by employees, all of whom received first aid at the refinery and returned to work on the same shift, according to Chevron.

Contra Costa County health officials, however, have added that more than 9,000 people went to emergency rooms for breathing problems and other health issues possibly caused by particulate matter in the smoke from the fire.

The price response from the blaze was immediate, with gasoline prices in San Francisco and Los Angeles both surging by about 11 percent, or 30 cents per gallon, while jet fuel and diesel jumped by about seven percent, or 10 cents per gallon, in the succeeding days.

In the week after the incident, the facility was operating at 50 percent capacity, processing about 121,000 barrels of transportation fuel daily. Chevron officials have said repairs could take anywhere from one to three months, but in a separate report, industry intelligence group IIR Energy said the refinery could be closed for up to six months for repairs due to “extensive damage” found in the facility’s heater tower, cooling towers and pipe racks.

“It is premature to speculate on the cause of the incident or the timeframe,” Chevron spokeswoman Melissa Ritchie told Pacific Maritime Magazine days after the fire. “It will take time before all the facts are known.”

Although Chevron has been reluctant to give details about the fire or the damage done to the facility and the impact on production, Poten & Partners, a global broker and commercial advisor for the ocean transportation industry, estimated in the days after the incident that the blaze had removed about 12 percent of California’s distillation capacity.

The refinery situation still remains unclear, but in a report provided to Pacific Maritime Magazine in mid-August, Poten & Partners said that continued operation of secondary units at the facility and available spare capacity on the US West Coast suggested that a reduction in exports to the West Coasts of Mexico and South America could help balance the markets.

The Richmond refinery is one of 21 refineries in California, but the 242,000 barrels of daily crude it was processing accounted for 12 percent of the state’s 2.09 million barrels per day of net capacity. In addition to Richmond, Chevron owns and operates a southern California refinery, the 269,000 barrels per day El Segundo facility near Los Angeles. Together, the two facilities refine the second and third-most barrels of oil per day in the state, after BP West Coast’s Carson facility, which refines an estimated 265,000 bpd.

The two Chevron facilities normally account for about 503,000 barrels of crude oil daily, equal to about 25 percent of the state’s net installed refining capacity. But with the crude oil distillation unit at Richmond disabled, California’s other refiners benefitted from the jump in the prices caused by the perception of diesel, gasoline and jet fuel shortages.

Oil and gas prices spiked in the fire’s aftermath, with the Oil Price Information Service reporting that retail gas prices had gone up as much as 50 cents per gallon in the days following the fire.
California has taken various steps to meet demand, including increasing product imports from Asia and elsewhere.

In response to the potential fuel shortage at least two companies, Chevron and Morgan Stanley, arranged in August for transport of at least 60,000 metric tons of jet fuel to be shipped to the West Coast from South Korea beginning late in the month. Other companies, including BP and Shell, were also said to be organizing fuel shipments from Asia.

Also, possibly as much as 1.8 million barrels of cargo such as vacuum gas-oil and fuel oil was being shipped in to the Northern California refinery from Italy, Japan, Argentina and Algeria, according to various shippers.

Although the Richmond situation is bad, the toll on human lives could have been much worse, as it was with the last major refinery fire on the West Coast.

In April 2010, an explosion and fire at the Tesoro refinery in Anacortes, Washington, about 70 miles north of Seattle, resulted in seven workers at the facility dying from burns and other injuries suffered after a malfunctioning naphtha hydrotreater exploded.

For a period of time after the incident, the refinery was down to about 25,000 barrels per day production, which was about 70 percent of its normal 120,000 bpd capacity.

At the time, the Tesoro refinery accounted for about 19 percent of Washington state’s total 627,850 bpd refining capacity and seven percent of the West Coast’s combined refining capacity of 1.67 million barrels.

In that case however, large stockpiles of gasoline on hand in regional inventories partially blunted the impact of the refinery’s reduced production until it could regain full capacity.