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Gas Shortage Possible as Crisis Affects Refineries, Pipelines

By CHRIS KRAUL, Times Staff Writer

The state's electricity crisis threatens to spill over into its gasoline and jet fuel distribution system, raising the specter of shortages as major pipelines and oil fields are being starved of power needed to operate pumps.

Inventories have begun to drop in gasoline distribution centers around the state, prompting industry representatives to predict Friday that shortages at gas stations could begin within days, along with the inevitable spike in prices. State authorities have for now rejected industry pleas for more power to keep the gasoline flowing, though negotiations continued Friday among officials of the California Energy Commission and the Public Utilities Commission.

Meanwhile, storage tanks are nearing capacity at major California refineries, where crude oil is turned into gasoline and other products. Several refiners warned Friday that they may have to shut down if pipelines cannot begin relieving the backup and transporting gasoline, diesel and jet fuel to distribution terminals, where the products are stored and then sold at wholesale.

Four days of power outages at statewide pipeline networks operated by Kinder Morgan Energy Partners and GATX Terminals Corp. have caused a huge backup of refined petroleum products around the state. The crisis has begun to afflict the entire California petroleum infrastructure, including oil wells in Kern County, the largest center of crude production in the state. Oil field pumps are shutting down because of power interruptions. And that could be another serious blow to California, where worst-case energy scenarios of several months ago have become daily reality. No one can reliably predict how much the price of gasoline may rise. Self-serve regular in California, though well above the national average, has dropped steadily from $1.744 a gallon Nov. 27 to $1.60 during the week ended Monday. Nevertheless, any prolonged pipeline outages, combined with the production cuts in crude oil announced Wednesday by the Organization of Petroleum Exporting Countries, could spell trouble, analysts said. "I see a huge problem," said Newport Beach energy economist Phil Verleger, an often prescient forecaster who has talked of occasional $3-a-gallon gasoline prices looming in future years as a result of refinery cutbacks, new fuel formulations and the occasional act of nature. Operations of the Kinder Morgan pipeline network were curtailed for six hours Friday, the fourth day this week that Pacific Gas & Electric Co. and Southern California Edison have cut its power. The network is the largest in the state delivering refined products and is primed by electric-powered pumps.

Since buying the 3,300-mile pipeline network from Santa Fe Pacific Pipeline Partners in 1998, Houston-based Kinder Morgan has paid a lower electricity rate in exchange for agreeing to have its supply interrupted in the case of systemwide shortages. But the savings proved ephemeral. The pipeline was down for 10 hours Tuesday, 18 on Wednesday and 16 on Thursday and is now two or three days behind on deliveries, spokesman Larry Pierce said Friday. The firm also disclosed that deliveries of jet fuel through its pipeline to San Francisco International Airport were jeopardized by the outages, a mini-crisis that was averted when airlines agreed to share the cost of steep penalties imposed on customers that ask utilities to override power interruptions.

Valero Energy Corp., which produces about 10% of California's gasoline, said it is "two or three days away" from shutting down all or part of its Benicia refinery unless the pipeline disruptions end. Officials of the California Energy Commission, the Public Utilities Commission and other agencies huddled Friday to try to formulate a policy to protect the state's energy infrastructure from outages, but no specific proposal was announced. PG&E had, in fact, supported Kinder Morgan's petition before the PUC to get a temporary exemption from interruptible status, but the application was turned down Thursday. Northern California refiner Valero faces a second threat to its business, as PG&E in this case has reportedly threatened to switch it to "interruptible" status, meaning it could lose power even in the absence of wider blackouts. If that weren't enough, Valero has also been told that its supply of natural gas, on which it depends to power its refining operations, could also be cut. "If refineries start shutting down, it's going to be a much bigger crisis than what you have now," said Valero Chief Executive William Greehey, adding that the company has appealed to state officials, including Atty. Gen. Bill Lockyer, for relief. "We have gotten no indication here yet that we will get special consideration," Greehey said. Chevron Corp., owner of giant refineries in Richmond and El Segundo, said its "throughput," or volume of gasoline and other fuels, has declined, but it would not say by how much. Ultramar Diamond Shamrock, which operates refineries in Martinez and Wilmington, said it has lost a "significant amount of production" at its San Francisco Bay plant.

Tosco Corp., owner of refineries in Rodeo and Wilmington, said its Bay Area operations could face cutbacks next week. "We're not close to closing down, but we'd have to cut back because of the nature of our work--depending on a continuous flow of crude oil into the refinery and continued flow of product out," spokesman Paul Oves said.

Because of the outages, gasoline inventory levels are already running low at terminals in some areas, said Leslie Watson, West Coast practice manager of Purvin & Gertz, a Long Beach energy consultancy.

"The terminals are starting to suffer, and you could start to see gasoline price increases. Terminals don't hold a lot of inventory and are timed with the pipeline cycles. So if pipelines are down, the terminals will run out. And if you get run-outs, prices will start to go up."

California consumes slightly less than 1 million barrels of gasoline a day, or just about what it produces. Supplies are already coming under pressure as the state moves to prohibit the gasoline additive MTBE by next year, a policy that would reduce fuel stocks 10% by volume.

* * * Times staff writer Tom Gorman contributed to this story.

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-- Martin Thompson (mthom1927@aol.com), January 20, 2001