Loss of Tesoro site opens doors to competition, official says

The pending closure of the Tesoro refinery in Kapolei later this month will give Hawaii an opportunity to import more refined petroleum products and potentially disrupt the oil company oligopoly that has stifled competition in the local market, the state consumer advocate said Wednesday.

Jeffrey Ono, executive director of the state Division of Consumer Advocacy, was one of several members of the newly formed Hawaii Refinery Task Force to express concerns about the future of the supply and pricing of fuel in Hawaii after Tesoro’s eventual departure from the market.

Tesoro announced in January that it would close its refinery after trying unsuccessfully for a year to sell it. Company officials said they would convert the facility into an import, storage and distribution terminal while continuing to look for a buyer for all Tesoro assets in the state, including its 31 gas stations.

Before making his comments at the first meeting of the task force, Ono disclosed that he was part of a legal team that filed an anti-trust suit for the state in 1998 alleging oil companies in Hawaii fixed gasoline prices artificially high.

“I don’t want to be the person to disrupt this wonderfully conducted meeting so far. But frankly, I don’t trust the oil companies,” Ono said.

“Chevron has taken its highest profit margins in the country out of Hawaii. Whether you take that on a cents-per-gallon basis, or return on equity, Chevron’s profit margins in Hawaii are greater than anywhere else,” he said. “It’s an oligopoly in which they do not price-compete.”

Chevron’s representative on the task force took issue with Ono’s characterization of the situation.

“I’m compelled to speak up. I just want to make clear that I take great umbrage with those comments,” said Al Chee, Chevron’s manager for policy, government and public affairs in Hawaii.

“Several of the statements have never been proved,” said Chee, who pointed to a consultant’s report on gasoline pricing practices done for the state Legislature in 2007 that he said supported his position.

Ono said while he had concerns about Tesoro’s departure, the importing of greater amounts of refined products could be beneficial for consumers if done right.

A key factor in that scenario would be making greater use of an import terminal at Barbers Point owned by Aloha Petroleum, Ono said.

Aloha’s ability to import refined products is often cited as leverage to provide pricing competition in Hawaii’s gasoline market. But Aloha buys most of its supply from Chevron, and rarely uses the terminal, Ono said.

“We need to be actually using that terminal,” Ono said. “I think we have an opportunity to actually lower the cost of refined product in the state by importing, rather than refining here.”

The 30-member task force was formed in February to assess the impacts of the refinery closure. It is charged with delivering an interim report to Gov. Neil Abercrombie by Sept. 30 and a final report by the end of the 2014 legislative session.

Tom Weber, the manager of Tesoro’s Kapolei refinery, told the task force the company is in talks with “interested parties” to buy Tesoro’s assets after the refinery closes.

“We are continuing to have discissions but we don’t have anything to report at this point,” he said.

Tesoro will continue to honor its existing supply contracts with customers including the state’s electric utilities, airlines and independent gas station operators, Weber said. However, some task force members said they were concerned that whoever buys the Tesoro assets would not be obligated to extend the terms of those contracts.