When the story first broke in 2003 that Shell Oil was going to shutdown its Bakersfield California refinery there was a great deal of skepticism. Insiders and analysts both suggested that Bakersfield was a viable operation and that even though it only produces two percent of California’s demand, shutting it down would have an adverse impact on gasoline prices in the state.
Shell responded that there weren’t sufficient oil reserves in the Bakersfield area to support an on-going refinery operation and that its small and antiquated facility was simply not cost effective. In fact, Shell was so sure of its position that it never considered trying to sell the refinery to another operator. At least not until public and political outcry drove them to reconsider that position.
The Associated Press tells the story of Bakersfield in the context of big oil’s manipulation of supply and demand to keep gas prices and profit margins high for consumers.
Shell portrayed its Bakersfield refinery as old and unfit. One executive said there was “simply no longer an adequate supply of crude oil” nearby.
However, oil reserves are expected to last for decades around Bakersfield and elsewhere, according to industry and government estimates.
Imports were impractical at inland Bakersfield, Shell explained. Lynn Laverty Elsenhans, the head of Shell Oil Products US, said the refinery here just wasn’t viable anymore.
“For this reason, we have not expended time or resources in an attempt to find a buyer and do not intend to do so,” Elsenhans wrote to U.S. Sen. Barbara Boxer, D-Calif.
Skeptics like U.S. Sen. Ron Wyden, D-Ore., got more vocal. They began to suspect that Shell wanted to shut the refinery to sell pricier gas from its bigger refineries elsewhere in the region. By taking a hit at Bakersfield, maybe Shell could come out ahead.
“They were trying to squeeze the market in every possible way,” Wyden insists.