FTC probing closure of California refinery

H. Josef Hebert

Thursday, July 8, 2004 | 8:58 a.m.

WASHINGTON -- The Federal Trade Commission has begun a formal investigation of the proposed shutdown of a Shell Oil Co. refinery in California to determine whether there are possible antitrust violations, a senior FTC official said Wednesday.

The refinery near Bakersfield, Calif., has been the subject of intense controversy as Shell officials plan to close the facility in November. The oil company said the refinery was being shut down because of a decline in oil production in the region.

But critics maintain the shutdown is part of a strategy to continue tight oil markets and increase California's gasoline prices, which already are the highest in the country.

William Kovacic, the FTC's general counsel, said subpoenas already have been served as part of the investigation and the probe is being viewed as a top priority of the regulatory agency.

"We regard this as a matter of particular urgency and importance," he said.

Shell spokesman Stan Mays said the company was cooperating with the investigation.

"It's nothing new," he said. "They have been evaluating our decision and we have been cooperating in that regard for several months. We will continue to answer any questions that they have."

He said the decision to close the refinery was a matter of economics.

"The refinery is a small, inland, inefficient refinery that can no longer compete with larger, sophisticated refineries ... typically located on the coastline," Mays said. He said the refinery has lost $50 million over the past three years and faces $30 million to $50 million in upgrade costs.

Kovacic disclosed the investigation at a hearing into high gasoline prices before a House Government Reform subcommittee, where lawmakers questioned why the FTC was not taking a more aggressive role in examining the Bakersfield refinery issue.

Rep. John Tierney, D-Mass., noted that Shell obtained the California refinery when the FTC required, as part of a merger, that ChevronTexaco divest some of its facilities.

Kovacic said the formal investigation is aimed at "examining possible antitrust implications" of the Shell refinery shutdown on California's gasoline market.

After the hearing Kovacic said the investigation would be conducted quickly in light of Shell's target date of closing the refinery by this fall.

He said that, depending on what is found, the FTC has a broad range of actions it might take, including challenging the shutdown or imposing various restrictions.

The Bakersfield refinery has a capacity of 70,000 barrels of crude a day. It has been producing 20,000 barrels of gasoline and another 15,000 barrels a day of diesel a day, Mays said.

Consumer groups have questioned the proposed shutdown.

A recent report released by Sen. Ron Wyden, D-Ore., questioned Shell's claims of declining oil availability. He said ChevronTexaco, in fact, has plans to expand drilling in the Bakersfield area, a region that is the center of California's oil production.