Business

Thursday, Aug 25 2011 09:00 PM

New business model brings refinery back to life

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    By Casey Christie / The Californian

    A worker pedals his bike past several tanker cars that bring vacuum gas oil into the Alon USA Bakersfield Refinery on Rosedale Highway. The gas oil comes from Alon's refinery complex in southeast Los Angeles County.

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    By Casey Christie / The Californian

    A worker uses the forklift near a hydrocracker area of the Alon USA Bakersfield Refinery on Rosedale Highway.

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    By Casey Christie / The Californian

    Refinery spokesman Chad Druten walks between two long rows of tanker cars that bring vacuum gas oil into the Alon USA Bakersfield Refinery on Rosedale Highway. The tanks to the right store the gas oil.

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  4. 4 of 5

    By Casey Christie / The Californian

    More than two years after it was shut down, the former Big West refinery on Rosedale Highway is back up and running full swing. It is now Alon USA Bakersfield Refinery.

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    By Casey Christie / The Californian

    A hydrocracker, left, at Alon USA Bakersfield Refinery as seen during a recent tour of the plant.

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BY JOHN COX, Californian staff writer jcox@bakersfield.com

Rows of computer screens pulsed with temperature and pressure readings inside the nerve center of the Alon USA Bakersfield Refinery on Rosedale Highway. Occasionally an alarm would sound and one of three men at the controls would check whether an adjustment was needed.

The plant's general manager stepped in Tuesday morning with a visitor. "I hear we got a nice color today," he told one of the control room operators.

Indeed they had: The refinery's mild hydrocracker -- a shiny, silo-like piece of equipment key to the plant's recent overhaul under new ownership -- was successfully churning out a clear, yellow liquid for making diesel fuel, gasoline and other products for the local market.

Much rides on that yellow liquid, not the least of which are 150 or so good local jobs and a more reliable fuel supply for the local agriculture and transportation industries. The fluid is also central to Alon's bold strategy to succeed where the refinery's previous owners have failed.

The new model

Until earlier this year, the refinery had no way of turning brownish-green vacuum gas oil into the yellow form General Manager Gordon Leaman Jr. was so interested in that morning. That's because the plant was designed to refine only crude oil, which it did until its closure about 30 months ago, to the tune of 65,000 barrels a day.

But since the refinery's June restart under Israeli-owned Alon, the plant has processed no oil whatsoever. Now it deals only with gas oil brought in by truck and rail from another refinery complex the company owns and operates about 140 miles away in southeast Los Angeles County.

The transportation process is far from ideal, and some wonder how long it can be sustained. For about a year Alon has been frustrated in its attempts to negotiate rights to use the only petroleum pipeline between here and L.A. so that it doesn't have to rely on trucks and rail cars.

Among those skeptical of such a long haul is Henry Medina, president of Bakersfield-based Fleet Card Fuels, one of the refinery's wholesale fuel customers. He said the current model seems to require a lot of handling and transportation expense.

"Is that viable? I hope it is, but I'm not so sure," Medina said Wednesday.

But on another level, refining gas oil left over from Alon's Paramount-Long Beach complex achieves new efficiencies that the plant's former owner, Utah-based Flying J Inc., tried but failed to achieve.

In the refining hierarchy, gas oil is one step above asphalt. It's a heavy byproduct that Flying J produced in Bakersfield but had to sell to bigger refineries down south because it lacked the capacity to process it.

Flying J applied for a permit to reconfigure the plant so it could refine gas oil, but eventually it gave up under community opposition. The company's December 2008 bankruptcy indirectly led to the refinery's closure in early 2009.

Alon paid about $40 million for the plant in spring of last year, then spent months redesigning the refinery. After a false start in late May, the plant sold its first batch of diesel on July 5, followed by its first gasoline sales in the middle of last month.

The refinery processes about 11,000 barrels of gas oil a day, turning it into about 300,000 gallons of diesel and 140,000 gallons of gasoline daily. It also makes smaller amounts of propane, butane and other petroleum products.

Leaman, the general manager, said plans call for ramping up to process 14,000 barrels a day, an increase of about 27 percent.

Fleet Card's Medina said much of that fuel ends up in tractors, commercial fleets and trains around Kern County. He said having a local supplier doesn't necessarily mean lower prices, because of the global nature of the commodity, but it does make supplies more dependable. For example, he said, customers won't have to wait for trucks bringing diesel from Los Angeles.

But to him, the biggest local effect of reopening the refinery is job creation.

Refiner as employment engine

Some 175 jobs were lost when Flying J closed the refinery, leaving a skeleton crew of a few dozen workers to look after the property. Refinery spokesman Chad Druten said the plant now employs 103 people, most of whom worked at the plant under Flying J. He said the company is looking to hire another five workers.

Alon also contracts more than 50 people to perform duties such as maintenance and security, not including the many truckers who bring in gas oil from Long Beach, Druten said.

In another change under Alon, the United Steelworkers Local 219 no longer represents workers at the refinery. Union official Ed Huhn said that's disappointing in light of an Alon official's pledge months ago to recognize the union.

Huhn said United Steelworkers has a complaint pending in Washington that seeks to reinstate the union's place at the refinery. Without a union there, he said he fears that management will cut back employees' wages and health benefits.

Even so, he remained positive about the plant's reopening.

"I'm glad they're up and running," Huhn said, "so the people out there can get paid."

Corporate view

The refinery's success is no small matter for Alon's publicly traded U.S. subsidiary, Dallas-based Alon USA Energy Inc.

The Bakersfield reopening was the first topic mentioned in the company's second quarter earnings news release Aug. 4, when it announced net income, excluding special items, of $16.7 million as compared with a $29.5 million loss a year before.

Although the Bakersfield restart came about too late in the year to figure heavily into the company's second quarter profits, President and CEO Paul Eisman lauded the "hard work" done off Rosedale Highway.

Eisman praised the Bakersfield team again Aug. 5.

"It's very early in the operation, and we are working to maximize the unit performance, but what we see thus far is promising," he told analysts in a conference call.

"The refinery greatly increases the competitiveness of our West Coast operations," Eisman went on to say. He added that priorities now include controlling costs and maximizing fuel production at the plant.

Alon's vice president of West Coast refining, Ed Juno, said this week that another important task is phasing in higher wholesale prices that better reflect the refinery's costs. He said the refinery initially offered low prices as it reentered the local market.

Most of these pricing adjustments have taken place already, he said.

"We're just concentrating on getting our operations smoothed out and our logistics with the truck and rail are beginning to click," he said. "So, I think everything's just coming together."

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