The Breakdown

Explaining Southern California's economy

Why is BP selling its refinery in Carson, California?

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45150 full

As the L.A. Times rightly points out, the fire at Chevron's Richmond refinery in Northern California — and the ensuing spike in gas prices — has overshadowed a deal between BP and Tesoro of take over a big BP refinery in Carson:

During any other week this year, the biggest energy news in California would have probably been the long-awaited announcement of a buyer for BP's 266,000-barrel-a-day refinery in Carson, which is the state's largest such facility.

First, the deal will make San Antonio-based Tesoro Corp. California's biggest and most important refiner of motor fuels. Tesoro already owns the state's fourth-largest refinery, the 166,000-barrel-a-day Golden Eagle (Avon/Rodeo) facility and a 97,000-barrel-a-day refinery in Wilmington.

The BP deal will push it ahead of Chevron, which has two refineries that produce about 503,000 barrels a day. Tesoro will have 528,000 barrels a day of capacity.

So why is BP unloading the Carson facility? It's been reported that it needs to raise funds to cover its many billions in losses related to the Deepwater Horizon disaster. But there's something else afoot, and it has to do with the refining business overall. This is from BP's website:

Changing trends in global demand for gasoline caused BP to reexamine its refining portfolio and led to the difficult decision in early 2010 to divest the Texas City and Carson refineries, together with Carson's associated integrated marketing business in southern California, Arizona, and Nevada. Subject to regulatory and other approvals, BP plans to complete the sales by the end of 2012, thereby halving BP's US refining capacity. 

This could of course be pure spin, but the Deepwater Horizon caught fire and sunk in April of 2010, and BP may very well have already made the decision to reduce its refining operations. If so, it would have been making a decision common among big oil companies with refining operations. The first sentence from the paragraph I've excerpted above tells the tale: "Changing trend in global demand for gasoline caused BP to reexamine its refining portfolio..."

The changing trend is that there's less demand for gas in the developed world, as vehicles become more fuel-efficient. Across the refining industry, where profit margins are already slim, the decision is being made to reduce capacity — or in the case of BP and Tesoro, sell that capacity to companies that figure they can make a go of it, in a coming era of reduced demand.

And for what it's worth, BP is doing other deals with Tesoro — it announced back in March that it would selling its Arco brand and stations to the Texas-based company.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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