Southern California refiners concerned about blackout risks

California refiners

Southern California refiners supply the majority of transportation fuels for the entire state. Los Angeles Times photo by Wally Skalij.

Any stoppages at southern California refiners would raise state gas prices

By Liz Hampton

HOUSTON, June 21 (Reuters) – Southern California refiners are bracing for potential disruptions ahead of possible blackouts this summer after the closure of a key natural gas field prompted state regulators to warn of power and gas shortages.

Those concerns have intensified this week as a heat wave swept the region, testing power grids that rely heavily on natural gas for fuel. Power generators face strained gas supplies after operations stopped at SoCalGas’ Aliso Canyon facility, the second largest natural gas field in the Western United States.

Southern California is home to more than 1 million barrels per day of refining capacity and supplies the majority of transportation fuels for the state. The six major refineries operating in the region require immense amounts of natural gas and electricity delivered on a consistent basis to run smoothly.

Any stoppages at the refineries would likely cause gasoline prices to rise in California, which is largest and most expensive gasoline market in the continental United States.

Refiners are exempt from rotating power outages by the California Public Utilities Commission (CPUC). But they could still face power disruptions if natural gas shortages are severe enough, warned Gordon Schremp, a senior fuels specialist with the California Energy Commission.

“If the situation gets bad enough, which no one is saying it will, the curtailment could affect larger blocks and touch ancillary facilities they depend on,” Schremp said.

In the event of even a brief power outage, a refinery would need between five to seven days to return to full production, assuming there is no damage, according to industry players.

“Our facilities are designed to run at a steady-state – not ramp up and down sporadically. The notion of ‘turning down’ a facility does not take into account the physical nature of the refining process,” the Western States Petroleum Association (WSPA) said in a statement.

The exemptions that protect refiners from rotating power outages do not exist for natural gas, and refineries are among the entities that could face curtailments.

Refineries made up 11 percent of natural gas end-use customers in 2015 for SoCalGas, the primary provider of natural gas to Southern California, according to the California Energy Commission.

These facilities use gas to fuel cogeneration power plants that produce electricity and steam, which is used in the refining process. In 2015, 45.2 percent of all natural gas used by Southern California refineries went to cogeneration, while the remainder was used for hydrogen production, heaters and boilers.

“Refiners are paying close attention to natural gas demand and trying to understand what sort of levers they can pull as far as natural gas use is concerned,” said David Hackett, president of oil service provider Stillwater Associates.

Modifying fuel use could collectively cut natural gas demand from Southern California refineries by 15 to 18 percent, the CEC estimates.

These steps may include increased consumption of propane and butane – liquefied petroleum gases (LPG) produced at the refinery that are commonly sold as separate products. These gases can be vaporized and used as fuel by some refiners, said Schremp.

Refiners can also modify use of still gas, a mix of gases produced from various refining processes, to fuel operations related to heating and boiling, he added.

Tesoro Corp, which operates two refineries in the region, said its 400-megawatt Watson cogeneration facility at its Los Angeles refinery utilizes natural gas to produce steam to operate the refinery. A spokesman for the company declined to comment further on potential blackouts.

Exxon Mobil and Chevron, which operate facilities in the region, did not immediately respond to requests for comment, while Valero Energy and Phillips 66, also operators of Southern California refineries, declined to comment.

(Reporting by Liz Hampton; Editing by Andrew Hay)

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