Getting to the bottom
of the barrel:
The state of our region’s refineries
by David Edwards

“All seas are made calm and still with oil,” wrote the Roman man of letters Pliny. Centuries later, the Englishman William Cowper noted in verse that “our wasted oil unprofitably burns.”
Vivid though these observations are, it’s doubtful either man could have imagined his words being applied to massive supertankers plowing through Pacific waters, the oil within destined to burn most profitably at a local refinery and thereafter help calm the seas of global commerce.
And though oil and water are the stuff of refined language, they don’t go very far in a discussion of refined petroleum. Northwestern Washington’s four refineries are used to being the talk of the town, considering they are regional job engines and a vital cog in the broader economy. They’re the talk of many towns now that Americans have seen their largest oil-supply network incapacitated by Hurricanes Katrina and Rita. While the Gulf Coast recuperates, West Coast petroleum production goes on as normal, buoyed by calmer seas, both literal and figurative.
In surveying the four local refineries – two each in Whatcom and Skagit counties – Northwest Business Monthly found encouraging signs. All four refineries appear poised to continue occupying an important place in the local, regional and national economy.

The Players
Skagit County: Shell Puget Sound Refinery, Tesoro Refinery, both on March Point near Anacortes.
Whatcom County: BP Cherry Point Refinery, Blaine; ConocoPhillips Refinery, Ferndale
The Prudhoe Bay oil field on Alaska’s North Slope supplies most of the crude oil processed at northwest Washington’s four refineries. Canada is a secondary supplier. Upon arriving at its destination, the unrefined petroleum is separated, processed, and converted into components of products ranging from asphalt to aluminum cans.
Every four days, like clockwork, an oil tanker docks at the BP refinery at Cherry Point, the largest in the region. Expansions have increased the refinery’s output to more than 230,000 barrels of crude oil per day. The BP Cherry Point facility services 75 percent of the jets refueling at Sea-Tac Airport, as well as 20 percent of the cars in Washington state.
Besides turning crude oil into garden-variety petroleum products such as jet fuel, gasoline and diesel, BP Cherry Point is also the world’s largest producer of calcined coke, a necessity in the aluminum industry. Cherry Point single-handedly supplies almost 10 percent of the worldwide demand for calcined coke. Next time you stop at a vending machine for a soda, there’s a good chance you’ll purchase a made-in-Washington product: one out of every six aluminum cans uses calcined coke from BP Cherry Point.
Over the past decade, parent company British Petroleum has invested $500 million in the facility, leading to a pair of new production lines. The gasoline desulfurization unit is already up and running, and the company broke ground in April on an ultra-clean diesel plant, which is expected to debut before the year is out.
Upgrades are also in the works at the Shell Puget Sound Refinery near Anacortes, although Shell is not factoring an expansion into those plans.
“Between 2001 and 2006, approximately $500 million is being spent,” said refinery spokesman Gerald Baron. “We’ve made substantial investments to meet clean fuels requirements and to improve the refinery’s environmental performance. Baron added that “those investments have not resulted in increases in production capacity.”
In terms of output, Shell’s Anacortes facility is the second-largest of the area’s refineries, and the larger of the two in Skagit County. Shell Puget Sound Refinery has an annual payroll of about $40 million and employs nearly 400 people, as well as some 100 contract employees. “This impact cannot be measured economically,” Baron said. “But (it) is a very important contribution that is highly valued by the community.” More important, though, he said, is “the volunteer activities and leadership roles that our employees play.” The refinery also donates a reported $80,000 annually to a variety of local causes – two dozen in all.
Operations at the refinery have benefited from technology, bringing changes aimed at reducing emissions, improving sulfur recovery and producing ultra-low-sulfur diesel. In doing so, Shell Puget Sound is building on previous recognition for its efforts. “This refinery has an excellent environmental record, including winning numerous environmental awards,” Baron said. Among them are a Clean Air Excellence Award from the Environmental Protection Agency, a Clean Air Partner Award from the Puget Sound Clean Air Agency, and an Environmental Excellence Award for water quality from the Association of Washington Business. Shell Puget Sound Refinery also won the company’s prestigious CEO Leadership Award three years in a row. According to the refinery Web site, “water quality compliance has been virtually 100 (percent)” since a new wastewater treatment facility was installed in 1998.
The state Department of Ecology largely backs up those claims. Ecology’s Industrial Section oversees the refineries’ compliance with water and waste-disposal regulations. Air quality compliance is monitored by the local air authorities who have jurisdiction. Ecology has a vested interest in the refineries’ National Pollution Discharge Elimination System permits. Incidentally, so do the refineries, because waste materials are more than an environmental issue: losing hydrocarbons and solids to the sewers reduces the amount of product the refineries can offer. That results in less revenue and higher costs for them.
The Department of Ecology has separate monitors for the Whatcom County refineries and Skagit County refineries. Department spokeswoman Caitlin Cormier commented on the status of relations between her agency and the two refineries in Skagit County.
“The refinery industry as a whole has been paying more attention to waste issues during design of new projects,” Cormier said. “Ecology can state that both Shell and Tesoro have had a very good track record maintaining compliance with their NPDES-permit requirements. Any non-compliance issues have been infrequent. (The refineries) have also been found to be in compliance with hazardous-waste requirements during Ecology inspections, with only minor issues that are generally quickly resolved.”
While the Tesoro and ConocoPhillips refineries produce less than their nearby counterparts, in the refinery business, every little bit helps. Both facilities are also important players in the local economy. The ConocoPhillips refinery processes about 93,000 barrels of crude oil per day. It also produces transportation fuels and residual fuel oils for the Pacific Northwest’s marine transportation market, and it began producing low-sulfur diesel in 2003. The Tesoro plant in Anacortes processes about 108,000 barrels of crude per day, and the gasoline goes to the company’s own service stations as well as to various unbranded stations. Tesoro employs more than 300 people at its Anacortes refinery.
ConocoPhillips refinery spokeswoman Kathleen Pennington said new technologies have affected almost every aspect of the plant’s operations.
“Digital systems and advanced controls have made the refinery more efficient and safer to operate,” Pennington said. “Additional advances have been made in catalyst technology, which allow existing refinery process units to more selectively produce the fuel products that are in greatest demand from the customer. These changes have impacted the workforce, with skill requirements shifting from wrenches and hammers to an understanding of electronic systems and controls.”
Pennington also seconded Cormier’s comments. In addressing environmental vigilance, she stressed the importance of partnership between the industry and its regulatory agencies.
“The spirit of the NPDES pollution-prevention study has been going on for years at our refinery,” Pennington said. “We have a solid professional relationship with the agencies based on mutual trust earned over the years. From an environmental standpoint, we are a highly regulated industry and must comply with many, many standards that are administered by the agencies. Our internal ConocoPhillips environmental programs and systems are quite robust.”

The Prices
The single most important factor in determining the cost consumers pay at the pump for gasoline is the price of crude oil. When the price of a barrel of crude goes up, so does the price of a gallon of gas. When crude oil prices go down, gas prices do, too – at least that’s the idea. In practice, gas prices rarely, if ever, drop proportionately with oil prices. Economist-speak for this phenomenon is “up like a rocket, down like a feather.”
“Because there is usually little spare refinery capacity, prices must rise to choke of the increases in demand,” said Robert Kaufmann, an energy economist at Boston University. “But when demand falls, gasoline prices drop less rapidly because firms sell from their stocks and slow the rate at which they refine crude oil into new supplies of motor gasoline.
“What is driving the prices is not anti-competitive behavior, but (oil-supply) stocks and refinery utilization. It is an asymmetric response, not because of collusive behavior on the part of the oil companies.”
Gas prices are even more volatile in Washington – as well as the rest of the West Coast – because of several considerations unique to this part of the country. That uniqueness covers all aspects of the system: supply, demand and production.
For starters, the West Coast is limited by existing infrastructure. Compared to the Gulf Coast pre-Katrina and pre-Rita, the distribution system in the Western states was not as efficient. Crude oil had to travel greater distances to reach refineries, many of which were already hard-pressed to keep pace. A moratorium on construction of new refineries further constricts West Coast oil supplies.
Population growth in Washington has also far exceeded that of the nation as a whole, putting added strain on an already tight gas supply. In the past decade, the national population expanded at a 4.5 percent clip; Washington, in comparison, saw a 21 percent increase. More residents means more drivers, which means more demand for gasoline.
David Dismukes, an energy analyst in Louisiana, said that in the wake of Katrina and Rita, the loss of refineries and production facilities will likely be recouped through higher gas prices – which we all will pay, regardless of where we live.
According to the Web site of Washington’s attorney general, however, the impact here is less severe. “Fortunately, Washington and the West Coast in general have not encountered the same supply reductions,” the site states. “As a result, Washington’s current gasoline prices, which are generally above average, are now among the lowest in the country.”
The last variable in setting Washington gas prices brings the two other West Coast states into the mix. Refineries in the Evergreen State produce just enough fuel to meet the needs of Washingtonians. Most of the excess fuel heads south.
Neighboring Oregon has no refineries, and never has, so it receives a large portion of its gas from Washington. In addition, some Washington refineries now produce a special blend of fuel that can meet California’s strict environmental standards. The result, according to the attorney general’s Web site, is that “Washington refineries (are) now shipping an increased amount of gasoline to California, where prices are higher. Although Washington refineries have increased their production capacity during the past decade, five California refineries have shut down. This will further increase exports to California.”
The site goes on to state that “Shell recently started shipping gasoline to California from Anacortes, and shipments to California are expected to increase after Shell closes its Bakersfield refinery in October.”
Apparently that’s news to Shell.
“The Bakersfield refinery was sold to Flying J,” Baron said, “and to the best of our knowledge continues to operate. Virtually all of the fuels produced at Shell Puget Sound Refinery are for the Pacific Northwest market.”

The Politics
Since 1977, oil tanker traffic in Puget Sound and the Strait of Juan de Fuca has been regulated by the Magnuson Amendment, named for former Washington Democrat Sen. Warren Magnuson. The law curtails tanker traffic to Washington refineries, and more tankers are allowed only if their oil is to be used within the state. Magnuson feared Washington’s prize waterways would suffer the same industrialization and pollution as the Gulf Coast.
But thanks to this year’s two major hurricanes, the nation temporarily lost the heart and soul of its oil industry. So Rep. Joe Barton, R-Texas, cobbled together a bill that he hoped would allay the crisis. Then Rep. Greg Walden, R-Oregon, suggested adding a provision to repeal the Magnuson Amendment. The plan called for allowing more tankers – and consequently, more oil – to supply Washington’s refineries.
The backlash from three members of Washington’s congressional delegation came swiftly and decisively. Republican Rep. Dave Reichert joined Democratic Reps. Jay Inslee and Norm Dicks in denouncing Walden’s suggestion. Charles Pope, reporting for the Seattle Post-Intelligencer, wrote that the provision could turn Puget Sound “into a superhighway for oil tankers.” Whatever the potential effects, Walden responded to the pressure by withdrawing the provision. Even without that controversial proposal, though, the Gasoline for America’s Security Act of 2005 passed in the House by only two votes, 212-210.
Democrat Rick Larsen, northwestern Washington’s representative in the House, voted against the bill. Any comments he made about the Walden provision were overshadowed by Reichert, Inslee and Dicks. But he spoke unequivocally about the full measure.
“To strengthen our energy security, this bill should aggressively encourage conservation and renewable energy sources,” Larsen said. “Because it does neither, this bill will do little in the short or long term to drive down fuel prices and make us more secure.
“If we are going to increase refinery capacity, we should not do so at the expense of basic clean air provisions. Instead, we should encourage more industry competition, so that it is more profitable for the industry to increase refining capacity.”

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