California Gas Price Manipulation

When the story first broke in 2003 that Shell Oil was going to shutdown its Bakersfield California refinery there was a great deal of skepticism. Insiders and analyists both suggested that Bakersfield was a viable operation and that even though it only produces two percent of California's demand, shutting it down would have an adverse impact on gasoline prices in the state.

Shell responded that there weren't sufficient oil reserves in the Bakersfield area to support an on-going refinery operation and that its small and antiquated facility was simply not cost effective. In fact, Shell was so sure of its position that it never considered trying to sell the refinery to another operator. At least not until public and political outcry drove them to reconsider that position.

The Associated Press tells the story of Bakersfield in the context of big oil's manipulation of supply and demand to keep gas prices and profit margins high for consumers.

Shell's position:

Shell portrayed its Bakersfield refinery as old and unfit. One executive said there was "simply no longer an adequate supply of crude oil" nearby.

Reality:

However, oil reserves are expected to last for decades around Bakersfield and elsewhere, according to industry and government estimates.

Shell's position:

Imports were impractical at inland Bakersfield, Shell explained. Lynn Laverty Elsenhans, the head of Shell Oil Products US, said the refinery here just wasn't viable anymore.

"For this reason, we have not expended time or resources in an attempt to find a buyer and do not intend to do so," Elsenhans wrote to U.S. Sen. Barbara Boxer, D-Calif.

Reality:

Skeptics like U.S. Sen. Ron Wyden, D-Ore., got more vocal. They began to suspect that Shell wanted to shut the refinery to sell pricier gas from its bigger refineries elsewhere in the region. By taking a hit at Bakersfield, maybe Shell could come out ahead.

"They were trying to squeeze the market in every possible way," Wyden insists.

Shell's position:

Shell spokesman Stan Mays denies that. He says it's "impossible to speculate" on whether Shell would have profited from closing the plant.

But he indirectly acknowledges that Shell didn't intend to make the refinery attractive for a competitor: "Who's going to want to buy it? We're not going to give crude supply with it."

Reality:

In Bakersfield, government regulators eventually began to nose around, wondering if Shell hoped to game the market. But the company finally hired an investment banker to scout buyers. In January 2005, it announced a sale to truck-stop operator Flying J, of Ogden, Utah, which also runs a small refining business.

In Bakersfield, Flying J's 350 refinery workers now process 2.7 million gallons of oil a day _ as much as Shell did _ in the churning nest of boilers, piping and stacks venting six stories above the scrubland.

The new owner won't discuss current profits but acknowledges making money. With limited oil from Shell, Flying J has kept its boilers busy with crude from other wells, also right here in the valley.

In fact, the refinery is so full of promise that Flying J has decided to spend several hundred million dollars to nearly double its gasoline output. It hopes to make about $85 million more a year in profit.

Gaming the system to generate higher profit margins. Artifically reduce supply and drive up prices. Its a great system and its an easy scam when you have two oil men running the country and holding hands with Saudi princes.

"A handful of very large companies realize it's in their mutual interest to keep prices as high as possible," says Tyson Slocum, an energy expert at the consumer group Public Citizen, founded by Ralph Nader. "I don't think they're sitting around a table smoking cigars and price fixing, but I think there are sophisticated ways to manipulate the market."

Americans continue to enjoy the fruits of Republican control of our government.