Californians may have been doomed years ago to pay higher and higher gasoline prices for the foreseeable future because of the state’s steadily diminishing refinery capacity.
That fate became far more certain in mid-May, when both the Federal Trade Commission and California Attorney General Kamala Harris signed off on the acquisition of Arco by Texas-based Tesoro Corp.
As average gasoline prices in this state rose above $4 per gallon, with levels topping $4.65 in some regions, both so-called regulators threw up their hands and said they could not stop this plainly anti-competitive deal.
In the days immediately after the proposed acquisition was announced last winter, it seemed the antitrust implications of Tesoro operating both its existing refineries in Martinez (formerly the Ultramar/Beacon refinery) and Wilmington (a former Shell facility) would force Tesoro to sell off the Wilmington facility to make its Arco deal go through. The Arco refinery Tesoro takes over in Carson is considerably larger than the Wilmington plant.
Noting that this deal gives two companies — Tesoro and Chevron — 54 percent of the California gasoline market, consumer advocates early on urged Harris and the FTC to insist that if Arco parent BP wanted to sell it, the buyer be a company other than Tesoro. Suggestions included Exxon-Mobil, Valero or Pilot Flying J, all of which also have refineries here, but none as large as those owned by Chevron and Tesoro.
That didn’t happen, in part because Tesoro could have closed the Wilmington facility rather than sell it. Regulators cannot force any company to keep a plant open, and 13 California refineries have been shuttered since 1980.
No one had much problem with Tesoro taking over Arco’s retail operations, including its large chain of AM-PM convenience stores, or even with Tesoro acquiring Arco’s pipelines. The sale price for everything Arco, including the inventory at stores and gas stations, came to $2.4 billion, money BP desperately needs to make for payments in the wake of its Gulf Coast oil drilling disasters.
The significant problem is that this deal leaves San Antonio-based Tesoro in a commanding position in California.
Harris did manage to extract a few token commitments before approving the deal. Tesoro will preserve more than 1,000 jobs in Wilmington for at least two years. The attorney general and the state Energy Commission will monitor gas pricing, volume and refinery capacity at all Tesoro facilities.
Tesoro will supposedly protect against price spiking when outages occur at any one refinery, by increasing production at its other refineries. And Tesoro assures that Arco will remain a low-cost fuel provider. The company has long offered slightly lower prices than some other chains.
Tesoro will continue to use the Arco name, just as it has long marketed its products under the USA Gasoline and Shell labels, besides supplying hundreds of unbranded stations. Altogether, Tesoro will have more than 1,300 retail outlets in the West. Its Southern California refineries will process more than 363,000 barrels of oil, along with another 166,000 at Martinez in the East Bay.
But a Tesoro agreement as part of this deal to add to production of California blends of relatively low-polluting gasoline will mean only about 16,800 gallons more per day, about what one big gas station can sell, the Consumer Watchdog advocacy group complains.
“Big deal,” said Liza Tucker, an oil industry analyst at Consumer Watchdog. “We are essentially hostages on a big gasoline island. Don’t be surprised if over the long run gasoline goes over $5 a gallon.”
The fact that state officials can monitor Tesoro production and prices does not give them any power to lower prices. Nor does it assure that refineries will always produce to capacity and keep supplies at levels where prices might remain fairly stable.
Tesoro, meanwhile, has said in its news releases that its move will have “competitive advantages” for California drivers. The company, however, would not specify even one such advantage.
Tesoro Chairman Greg Goff called his Arco acquisition “transformational,” and it may be — for the company. But it’s hard to see how that will be good for drivers. It creates a dominant supplier of a vital commodity, and if history is any precedent, that will almost certainly mean steadily rising prices, at least until some new form of energy comes along to compete.
Elias is the author of “The Burzynski Breakthrough,” available in a soft-cover fourth edition. His email address is firstname.lastname@example.org