Tesoro to shutter refinery

Tesoro Corp.’s decision to convert its Campbell Industrial Park oil refinery into an import terminal and lay off as many as 200 workers is not expected to have a significant effect on prices for gasoline and other fuel products in Hawaii, state officials and energy analysts said.

San Antonio-based Tesoro, which had tried unsuccessfully for a year to find a buyer for the largest refinery in the state, said Tuesday it will shutter the financially underperforming facility in April. At that point Tesoro will begin to import gasoline and other refined fuels to be stored at the Kapolei facility and distributed to customers. The company will continue to seek a buyer for its assets, which include 31 Tesoro gas stations across the state and 129 acres of land in Kapolei valued at $59.3 million.

The biggest immediate consequence will be a loss of jobs associated with Tesoro’s refining operations, said Mark Glick, the state’s energy administrator. A Tesoro spokes­woman said 180 to 200 of the refinery’s 240 positions "will be affected."

Tesoro informed employees of the impending layoffs at a noon meeting Tuesday at the refinery, said Jason Kaneao, a Tesoro contract worker with Pacific Consultants and Construction who attended the meeting. Employees were told 190 to 200 would be laid off, Kaneao said.

"Our hearts go out to the families that are affected by the job losses," Glick said. "But prices will not be affected," he added.

The presence in the Hawaii market of Chevron Corp., which owns the state’s only other refinery, and Aloha Petroleum Ltd., which has the capability to import refined products, should provide pricing competition in the gasoline market, he said.

Aloha Petroleum, which operates nearly 100 Aloha and Shell gas stations in the state, buys most of its fuel from Tesoro and Chevron because the price is comparable to what Aloha would pay to import gasoline, said Fereidun Fesharaki, an East-West Center senior fellow and chairman of Singaporean-based consultancy FACTS Global Energy.

"If the price (charged by Chevron) were to suddenly go up, then Aloha would import gasoline," Fesharaki said. "After the (Tesoro) refinery closes, the prices here will be the same. People in Hawaii won’t notice any difference," Fesharaki said.

The only scenario under which the loss of a refinery could affect the supply of refined products to Hawaii would be if there were a "global crisis" like a major war in Asia, he said. In that situation it would be easier to bring in a tanker of crude oil and process it rather than ship in all the various refined products that would be needed, he said.

"But right now that’s not a problem because the world is generally awash in refined products," Fesha­raki said. Tesoro’s Hawaii refinery, with a capacity to process 94,000 barrels a day, has been producing significantly less than that in recent years, Fesharaki said. The plant is Tesoro’s least profitable, he added.

Tesoro produces roughly a half-dozen different products at its Campbell Industrial Park refinery. Jet fuel is the largest product by volume, making up 27 percent of production, according to a company presentation made to prospective refinery buyers. Gasoline accounts for 22 percent of production, followed by diesel (19 percent), low-sulfur fuel oil (18 percent), high-sulfur fuel oil (8 percent) and naphtha (6 percent).

Hawaiian Electric, which generates about 75 percent of its electricity from oil bought from Tesoro and Chevron, said it did not expect any disruptions as a result of Tesoro’s decision.

"We have been assured by Tesoro officials that all fuel supply commitments will be honored. We have existing contracts with Tesoro and any changes to those contracts would be subject to future negotiations and review and approval by the Hawaii Public Utilities Commission," HECO said in a statement.

Gov. Neil Abercrombie said Tesoro’s decision should be a reminder that the state is overly reliant on oil as an energy source.

"The changing petroleum landscape underscores the urgency for the State of Hawaii to move rapidly on meeting our Hawaii Clean Energy Initiative objectives (which include the goal of getting 40 percent of the state’s energy from renewable sources by 2030)," Abercrombie said in a statement. "Essential to our economic recovery is taking control of our state’s energy future. We currently send billions of dollars a year outside of our islands to meet our energy needs," Abercrombie said.

While Tesoro was unable to find anyone to buy its refinery, the company’s network of gas stations is expected to generate interest. Tesoro employs 244 workers in its gas stations.

One potential buyer is Mid Pac Petroleum LLC, which owns or manages 53 gas stations in Hawaii under the 76 brand.

"We’re always out there looking for opportunities. We’ll evaluate this to see how it may fit into our system," said Jim Yates, president and chief executive officer of Mid Pac Petroleum.

Yates also said Tesoro’s terminal operations may be attractive to a trading company that wants to enter the Hawaii market. There are various scenarios that could play out, including one in which a trading company partners with a gasoline retailer to take over Tesoro’s terminal and retail operations, he said.

Tesoro buys its crude oil on the open market and ships it via tanker to Campbell Industrial Park. The crude is offloaded at mooring anchored about two miles off Barbers Point in 105 feet of water. Tesoro also has terminal and storage facilities at Hilo Harbor, Kahului Harbor and Na­wili­wili Harbor.

The news of the pending refinery closing was unsettling for some Tesoro customers, who said they were concerned gasoline prices would go up.

"I drive from Kailua to Kapolei. I would assume it’s going to affect it," Lesley Cook, 33, said as she filled up at the Tesoro station in Kapolei. "I already think about driving a hybrid or electric vehicle, so this will probably push me a little more in that direction. Any time you take one of the major players out of something, that’s a benefit for the other guy to be able to do whatever they want."

Ewa Beach resident Steve Porcello, who works as a project manager for a Kapolei construction company, said he believed going to a single refinery in Hawaii will affect the overall price of goods.

"Any monopoly is bad. It’s bad all the way around. It’s bad for construction. It’s bad for everything. Fuel prices go into everything we touch. All of our goods are going to go up. I find it hard to believe anybody that sells gas in Hawaii would be going out of business. We’ve got one of the highest gas prices in the nation. It’s not like they don’t get a premium for their product."

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Star-Advertiser staff writer Kristen Consillio contributed to this report.