Refining oil issues
A closer look at refineries, distribution and alternative fuels

By Susan K. Godfrey

The ConocoPhillips Refinery in Ferndale is one of four oil refineries in Northwestern Washington.

Tired of high gas prices but love what the local refinery jobs do for the economy? Read on about the current and future contributions of, and challenges for, the Big Four oil refineries and what may be on the horizon in alternative fuels.

The region’s oil refineries are a mainstay of the local economy, with pay scales still topping the lists of local manufacturing jobs. The most recent Washington Research Council report, released in January of this year, found that in 2005 the four local refiners, along with Tacoma’s U.S. Oil Refinery, employed 1,767 fulltime workers paying an annual near-average $80,000 wage and 1,676 contract workers at comparable wage, meaning without overtime or benefits, a wage nearing $65,000 annually for a maintenance worker. Distributors have also fared well, paying 17,755 workers $375 million in 2005.
Businesses providing refineries with utilities, transportation, building and businesses services are also doing well, creating more than 16,000 jobs and $750 million in personal income for state residents, according to the WRC report, which was funded by the Western States Petroleum Association.
This is a complicated industry with a complicated present and future.

Short history
The state’s first four oil refining plants were originally built in the 1950s in Anacortes, Cherry Point and Tacoma, with the last, formerly Atlantic Richfield – now BP – at Cherry Point in 1971, which has the largest refining capacity. Most of the older plants were modified to increase refining capacities in anticipation of an influx of Alaskan crude oil in the mid-’70s. In 1977, however, the federal Marine Mammal Protection Act was amended to prohibit new port construction east of Port Angeles. Local plants have traditionally gotten their crude mainly from the Gulf of Mexico through Texas and California pipelines, from Alaska’s North Slope by tanker into Anacortes and Cherry Point, and a small amount by pipeline from Alberta, Canada. The Gulf storms of 2005 interrupted that supply, however, and now some imports are being shipped from as far away as Singapore.

What they do
The refineries process the crude into about 46 percent gasoline product, 23 percent diesel oil and 13 percent jet fuel, which then goes to distributors or, in some cases, direct to large retailers.
All five refineries processed nearly 554,000 barrels of crude per day and output 575,000 barrels in 2005. The number of barrels increases during refining because during the process molecules are “cracked” apart and re-formed, creating more volume of refined product than unrefined.
About 61 percent of refined product is consumed in the state and the rest is sold outside. Besides the top three products mentioned above, other products produced in the refining process are emulsified road asphalt, marine fuel, liquid petroleum gas and byproducts “residual fuel oil,” gas oils, coke and sulfur.
At the distributing end, fuels may be mixed with additives specific to each brand.

Challenges to refiners
In addition to questions of supplies of crude, the efficiency of the older plants to refine it has been an issue, as are changing federal and state regulations requiring an array of fuel grades and additives.
Local ConocoPhillips spokeswoman Kathleen Pennington explains, “Just like other manufacturers, refineries are built to produce a certain amount of finished product. Equipment limits, coupled with air and water permit requirements, determine the total number of barrels per day a refinery can process.” She says their refinery started with 35,000 barrels per day capacity in 1954 and has expanded its capacity to 97,000 barrels of crude per day. In the last seven years, she says, more than $500 million has been spent on upgrades and capital improvements at their Ferndale refinery.
She says that another factor in pricing is that while the number of refineries in production has decreased, demand has increased.Several years ago a tax credit was instituted with the intent of encouraging suppliers of such alternate fuels as biodiesels. Refiners were able to take advantage of it also, however, by adding vegetable oils and animal fats to their existing refining processes without having to convert the plants. The process is called thermodepolymerization and the IRS has defined “renewable diesel” to include diesel fuel made by this process.
Pennington says ConocoPhillips formed a “strategic alliance” with Tyson Foods in April to produce the renewable diesel using beef, pork and poultry by-product fat from some of that company’s North American rendering plants later this year, and that the company will begin making capital improvements in some of its plants enabling it to produce that fuel in its existing hydrotreaters. The local plant is not one of the first participants. The process, though blessed by the IRS, is pending Environmental Protection Agency approval, which is expected.
Shell Puget Sound Refinery has begun producing a gasoline sub-grade for the Portland, Ore., market that is “ethanol-ready,” meaning ethanol blending that not only reduces air pollution but also improves automobile performance. Shell spokesman Brian Sibley says there is a large market for the product in the Portland area due to city regulations and does not know if distribution will be expanded to Washington state.

The price
Oil pricing is a complicated issue, but the question on local minds lately has been “If we have five refineries in Washington, why are local gas prices so high?”
Distribution may be a key. Some of the local plants supply direct to Seattle distributors who then truck it back to this area for distribution. Also refineries have been able to apply “zone pricing,” which offers products cheaper in the Seattle area where competition is stiffer.
Oil company profits have also gone up. Former BP refinery plant manager Rick Porter, now a vice-president for safety oversight, recently told The Bellingham Herald that while BP profit margins are high, most of that money will be spent on plant improvements to meet more stringent regulatory standards – they’ve already spent $200 million on that – and put into a new co-generation plant there. Retooling the plant for co-generation – burning its own fuel to power its operation, and then selling any excess to the utilities – could cost up to $500 million. The plant may also budget to convert parts of the plant to treat a nonconventional crude oil from Canada, thicker than that from Alaska.
In response to the public’s question about high prices at the pumps here compared to nationwide, and even Seattle pricing, in early June U.S. Sen. Maria Cantwell, (D-Wash.) and other local representatives lobbied for some relief, resulting in a bill making gas price “gouging” a federal crime in times of national energy emergency, based on market disruptions such as in the aftermath of Hurricane Katrina. This provision, now part of Senate bill 1419, is still being debated by Congress.
The next step is to define “gouging” and turn over complaints to the Federal Trade Commission and Justice Department to investigate oil companies, traders and retailers if they are thought to take unfair advantage of consumers for heating fuel and gasoline in times of an energy emergency.
Speaking for his company, Sibley says, “Shell does not condone price gouging and investigates any allegations. We have a history of being sensitive to price changes during significant events, such as hurricanes, and we encourage our wholesalers and dealers to also practice restraint during these periods. There have been more than two dozen state and federal investigations and studies over the past several decades. They have found that market conditions, including factors like crude oil costs and supply and demand, determine the price of gasoline. None of the investigations reported any evidence of illegal or anti-competitive practices on the part of the petroleum industry.”
Supply and demand, which is linked to the plant’s limited production capacity, is another factor. Some say that when gas prices are higher in British Columbia, Canada, visitors from there fuel up here and consume much of the gas supplied at local pumps.
Another factor is time of year. The American Petroleum Institute reported in early May that a seasonal factor that can impact output rates is “the annual switchover to ‘summer blend,’ which requires a large supply draw down.” And many of the facilities do an annual “spring cleaning,” a complete maintenance overhaul, at that time, which requires some temporary line closures resulting in less output.
Good news for consumers statewide is that a new petroleum terminal is planned for Moses Lake by CHS, a food, energy and grain company marketing the Cenex brand. The company, the nation’s largest cooperative fuel refiner, said it will release its refined fuel there by rail for use in gas stations, farms and other businesses.

Pumping dollars into government coffers
The refineries are good citizens in that via taxation and regulations, the WRC found that, at last report, the five state refineries paid $175.9 million in state and local taxes, $17.18 million in property taxes and $3.3 million in regulatory fees in 2005. They also point out that through what economists call “multipliers,” the money they pay to employers and vendors ripples out into the economy, supporting many other sectors.

Workforce issues
Aging of the plants is not the only concern of the refiners; they also have an aging workforce. Four years ago the local four partnered with Bellingham Technical College to create a program to train employees who can fill vacancies of retiring employees.
The result, the Process Technology (PTec) program trains students for entry-level refinery positions. Satpal Sidhu, BTC dean of professional technical education, says students in the program learn the basic math, chemistry and technical writing skills, and technical application skills about refinery equipment, processes, safety and environmental subjects to prepare them to monitor and maintain processing equipment and perform safety and quality testing. Students tour the refineries and other processing plants and also take two- to six-week internships in all four of the local refineries.“We have a very cooperative relationship with unions and refinery managements. Our students are welcome to have internships and ultimately get hired by them. During the internships, students are under the mentorship of their plant operators and area supervisors and work full days on real equipment,” Sidhu says. Most of those students get local jobs, although some move to other states for personal reasons. Wages are in the “over $50,000” category, he says.
Pleased with the arrangements, all of the refineries have contributed at least $25,000 to the college’s program, and Sidhu says “In addition to that we have received thousands of dollars worth of in-kind donations or equipment for our labs.” The refineries also provide adjunct instructors, guest lecturers and participate in many of the program’s student activities.
More than 60 students are currently enrolled in process technology and instrumentation and control technology there. The school is actively working with the Northwest Workforce Development Council, local high school counselors and other community organizations to recruit young students as well as to re-train displaced workers to what Sidhu calls a “high-demand, high-wage” career training program.
Besides permanent employees, the refineries use contractors not only for daily repairs, maintenance and construction, but also skilled cleaning. And when there’s a periodic turnaround – usually an annual maintenance and improvement sweep – even more temps are added, from companies like Anvil Corp., Timec, Western Refinery Services, VECO Engineering, Haskell Services, Matrix Services and Birch Equipment
BP and Conoco have consistently been on the “Top 25 Employers in Whatcom County” list compiled by Western Washington University’s Center for Economic and Business Research, and some – like Hart Hodges, director of the Center for Economic and Business Research at Bellingham’s Western Washington University – assert that when the range of jobs is added together, they’re the largest employer in Whatcom County.
Nevertheless, retiring employees are depleting the workforce at the plants. Local BP Plant Manager Jeff Pitzer, who took the job earlier this year, has told the local press that one-third of the plant workforce will need to be replaced in the next five years and has put maintaining the workforce at the top of his agenda, along with infrastructure improvements.

Environmental issues
Plant managers are well aware of public concerns about environmental impacts of their processing, and are taking steps to improve their regional “footprint.”
A number of the plants have directly contributed to local environmental concerns. For example, the BP co-generation plant is being built within the confines of its existing site rather than on additional acquired land. At Tesoro, employees volunteer via the EAGLES program – Environmental Awareness Group Learning Environmental Solutions – in a number of regional environmental efforts. And about a year ago, the Shell refinery announced it had received an environmental management standard certification of ISO 14001, which is an international classification for some of the “best practices” in that area.
ConocoPhillips at the corporate level has also become involved in several environmental initiatives, pledging $22.5 million to establish a research program at Iowa State University to develop technologies that produce biorenewable fuels and also pledged $1 million to support the Climate Change Policy Partnership at Duke University. Biorenewable fuels include ethanol from corn starch and biodiesel from soybean oil. So-called “advanced” biofuels are expected to be made from fibrous biomass such as corn stalks and leaves and switchgrass. ConocoPhillips also recently announced company support of the newly formed Colorado Center for Biorefining and Biofuels. Pennington reports that ConocoPhillips is “the first and only oil company to announce its support for a mandatory national framework to address greenhouse gas emissions by joining the U.S. Climate Action Partnership.”

‘Alternate’ fuels
Biodiesel and ethanol advocates point out that the corn and soy-based product are the result of government subsidies for those products but that a longer-term solution will be products made of non-food crops that can be grown in otherwise unproductive environments including not only switchgrass for ethanol but algae for biodiesel.
Because this industry is so new, a trade association formed last September by the Northwest Environmental Business Council of Portland, Ore. – the Northwest Biofuels Association. Its Web site, http://beta.nwbiofuels.org, answers frequently asked questions. It reports that about 20 biodiesel plants are either operating, under construction or planned for Washington state. Another group devoted to biodiesel is at http://www.nwbiodiesel.org, where there is an online information bulletin board and also lists makers and distributors of that product in this area.
One of those is Atul Deshmane, president of Whole Energy of Mount Vernon. A founding member of Northwest Biofuels, Deshmane’s business has been operating three years in Whatcom and Snohomish counties starting with limited amounts of fuel, then last year providing higher-volume distribution. The business currently has two plant projects under way, a large facility in Northern California, and plant expansion in Mount Vernon, both to be operational next year.
He said he’s benefiting from information from retired refinery workers, and also has a good working relationship with current staff, who have helped him source material. “It’s wonderful to have this kind of expertise available right here. We all participate on economic development councils and it’s useful to get friendly advice from the corporations on a regular basis.”

Bellingham Technical College’s Process Technology program trains students for work at the refineries.





Atul Deshmane’s biodiesel company Whole Energy has a positive working relationship with local refineries.