Oil

Monday, Aug 20 2012 06:00 PM

Local refinery weighs return to oil

BY JOHN COX Californian staff writer jcox@bakersfield.com

Alon USA Energy Inc. is considering whether to start processing oil at its Rosedale Highway refinery, which has not refined crude in 3 1/2 years.

The Dallas-based company confirmed this month that it hopes soon to begin hauling relatively inexpensive North Dakota oil to Bakersfield -- a business strategy pursued by Bakersfield's Kern Oil & Refining Co. and other West Coast refiners.

But it's unclear whether Alon would process that crude locally or send it to its southern Los Angeles County refinery complex. President Paul Eisman would not give a definite answer when asked directly in an Aug. 9 earnings conference call.

"Well, we are working through the options of that. Clearly, we have the capability to run crude at Bakersfield," Eisman said in the conference.

The implications for local employment remain unclear, though a return to processing oil could be good news for Kern's oil industry. Local oil producers lost a dependable customer when the plant's former owner shut the plant down in early 2009 amid bankruptcy proceedings.

The plant has processed only vacuum gas oil left over from its L.A. County complex since reopening under Alon's ownership in June 2011. The company brings the byproduct north by truck and rail and then turns it into diesel, gasoline and other products.

Eisman said the company was trying to secure permission to use the rail facilities for the crude oil transport at its Bakersfield plant. But Alon is entitled to refine crude oil at the refinery without any special approvals, county Planning Director Lorelei Oviatt said Monday.

Alon said it was looking at resuming crude oil refining in Bakersfield not only because of the lower cost of so-called midcontinent oil but also because of high expectations for the Monterey Shale oil formation underlying much of the southern Central Valley.

The company's 100-employee Bakersfield plant reopened in June after being closed for about half a year because of poor operating margins.

From the beginning observers have questioned Alon's decision to process only vacuum gas oil in Bakersfield. They say it only makes sense to refine crude in the capital of West Coast oil production, and they point to the heavy transportation costs involved in moving vacuum gas oil 140 miles to Bakersfield.

Industry consultant Dave Hackett said it may be too early to tell whether the economics justify a return to processing crude oil in Bakersfield.

"But they should be looking at it, certainly," he said Monday.

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