January 21, 2010 at 11:38 am #2793
Chevron plans to cut jobs
By George Avalos Contra Costa Times
Updated: 01/19/2010 07:19:29 PM PST
Chevron Corp. plans job cuts in its fuel production and retail operations, a potentially wrenching downsizing that clouds the outlook for its century-old refinery in Richmond.
San Ramon-based Chevron has been forced into a far-ranging review of its downstream units – composed of refinery, retail and marketing operations – because the economy has toppled into recession, drying up profits for the downstream business.
“It is very difficult to make money in the downstream business,” said Lloyd Avram, a Chevron spokesman. “The downstream market has been out of balance for some time.”
Chevron notified retail, refining, marketing and transportation employees through a video message that a downsizing was in the works. More details were due in March, which could include the number of jobs that will be lost. An assessment of how downstream units should be restructured may be complete by September.
The energy giant could sell or close some refineries, or scale back the retail markets in which it competes, as a result of the assessment. “It is possible that at some point we could make a decision to dispose of assets such as refineries,” Avram said. “It is possible and likely that we will exit some markets.”
Might a shutdown or asset sale include the Richmond refinery?
Chevron emphasized it hasn’t made any decisions on what to do with any refinery, including the two in California and one in Hawaii. Still, some Richmond officials have begun preparing for a possible oil refinery shutdown in their city.
The City Council is due to meet in February “regarding the preparation of a contingency plan should Chevron abandon, sell or downsize operations,” Richmond Mayor Gayle McLaughlin said.
A government assessment about the Richmond refinery’s future might also be lengthy. “This needs to be discussed with the City Council and the community broadly and we will be doing that,” the mayor said. The Richmond refinery employs 1,250. The refinery also provides about $26 million in annual property tax revenue for an array of public agencies.
It accounts for at least 25 percent of the city’s general fund revenue, which would equate to roughly $36 million in the current fiscal year. Chevron has 18,000 downstream employees worldwide, including 4,400 in California. Analysts weren’t surprised by the move to restructure and cut refinery and retail operations and jobs.
“Chevron is not making much money in refineries. Everybody involved in refining is having a hard time making money over the last year,” said Jason Gammel, an analyst with Macquarie Research, an investment firm in New York. During the final three months of 2009, Chevron’s refineries lost more than $600,000 a day, according to a Deutsche Bank analyst.
As a result of the thin margins, Chevron could be reluctant to continue operating refineries that are outmoded. That’s a problem that all refinery operators, not just Chevron, must confront, said Tina Vital, an oil and gas equity analyst with rating firm Standard & Poor’s.
“Companies want refineries that are larger, more nimble, and more flexible, with the ability to handle a wider range of crude-oil feedstocks,” Vital said. “With the recession, a lot of refineries worldwide will have to permanently shut down.”
Chevron is seeking approval to upgrade and modernize the Richmond refinery. Environmental and legal foes have stymied the efforts. The upgrade was designed to achieve improvements on a wide range of fronts. Among the benefits cited by Chevron: “This project will increase the refinery’s flexibility to process a larger variety of crudes.”
Union officials said the prospect of downsizing for the refinery operations was “unsettling,” as Jeff Clark, secretary-treasurer of the United Steel Workers Local 5, put it. Local 5 represents numerous union workers at the Richmond refinery.
“We support having clean and safe refineries for our workers and for our communities. That’s a great idea,” Clark said. “But at some point, you have to look at whether all of these environmental regulations in the Bay Area make these facilities less competitive.”
Yet even if the Richmond refinery isn’t upgraded to fit in with the new world of crude oil, that is not a death knell by any means. “The Richmond refinery is in California, which has some of the highest refining margins in the world,” Vital said. Plus, the factory is near other key Chevron markets such as Asia and the Pacific.
“Just because you have an older, less nimble, less complex refinery, that doesn’t mean the refinery is automatically a target to be sold or closed,” Vital said.
January 21, 2010 at 11:54 am #5814
Voros: Richmond likely to lose Chevron’s golden eggs
Drew Voros, Contra Costa County Times Business Editor
Posted: 01/19/2010 01:26:53 PM PST
The Richmond City Council, along with fervent environmentalists, could soon see their wildest dream come true: Chevron is poised to shut down its Richmond refinery operations.
Gone, later, hasta la vista. Kiss your economic engine, your tax-revenue generator goodbye, Richmond.
Tuesday’s announcement by the San Ramon oil giant that it would seek a “leaner” refinery division throughout the company with jobs cuts and exiting certain markets does not bode well for the site of Chevron’s first refinery.
Chevron said that workers at its downstream operations, which manufacture, transport and sell gasoline and diesel fuel, had been notified of the decision Monday. Further details are expected in March. Expect those details to include the closure of the more than 100-year-old Richmond refinery.
While Richmond’s green machine did not influence the overall change in corporate policy at Chevron, it certainly will have a hand in whether Chevron continues to operate a refinery responsible for sending millions of dollars to community groups in Richmond and has filled Contra Costa County coffers with literally billions in tax revenue over the years.
Global oil demand is down considerably due to the worldwide recession, and Big Oil is drawing down refinery capacity throughout the world. Shutting refineries is the easiest way to improve industry profit margins. Sunoco and Valero have already announced plans to close refineries in Texas and Delaware this year.
Chevron was in the midst of a major retrofit last summer at its Richmond refinery that would have enabled it to process a larger variety of crude oil, which would improve profit margins at the facility and mean less reliance on higher-grade Middle East crude. But a lawsuit put that on ice.
Last summer Contra Costa County Superior Court Judge Barbara Zuniga gave Richmond city leaders and Earthjustice lawyers a victory, saying that Chevron must clarify in its environmental report whether the expanded facility will process heavy crude oil, which generates more pollution than lighter crude.
Will Rostov, an Earth-justice attorney who filed the suit, said at the time the judge’s decision means the city of Richmond will have to study Chevron’s expansion plans more critically. The circuitous legal argument put forth by Earthjustice that Chevron’s expansion will harm the environment is precisely the type of court fight that will keep the needed retrofit work from being done for years.
Now, with Chevron surveying its own landscape for refinery operations to shed, Richmond is certainly at the top of its list.
But city leaders shouldn’t count on that expansive, waterfront property opening up for development.
Last year, sources at Chevron told me that company has had discussions with Chinese buyers for the refinery, which would be dismantled and shipped to China. The land would be retained for an off-loading facility for refined crude products such as gasoline, employing far fewer people and generating scant tax revenues.
If Chevron had been allowed to complete the retrofit in Richmond, there would be a strong fiscal argument to keep it open. Instead, there is a strong fiscal argument to close it.
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