Oil Workers Strike Seen Prolonging U.S. Refinery Repairs During Breakdowns

anacortes refinery
Tesoro’s Anacortes Refinery, file image by Walter Siegmund/wikipedia

By Robert Tuttle

(Bloomberg) — The biggest U.S. oil workers strike since 1980 will probably prolong time needed to make repairs after mechanical breakdowns, even as most refineries continue to operate at near-normal rates.

Tesoro Corp. shut the half of its 166,000-barrel-a-day Martinez plant in California that wasn’t already idled for maintenance and managers took over operations at six others after workers represented by the United Steelworkers union walked out of nine sites Sunday after contract negotiations fell apart. The plants account for 10 percent of the country’s refining capacity.

“The response time for upsets will be impacted by having non-regular employees operating the plant,” Mark Broadbent, an analyst at Wood Mackenzie Ltd. in Houston, said in a phone interview. The nationwide strike called in 1980 lasted three months. The longer the current strike goes on, the more probable that equipment will break down and need repair, Broadbent said.

U.S. refineries operated at an average utilization rate above 90 percent from Nov. 1 until the week ended Jan. 16, when the rate dropped to 86 percent, U.S. Energy Information Administration data show. The rate rose to 88 percent the week ended Jan. 23, compared with a five-year average of 83.59 percent for this time of year.

Refineries may cut rates “a little” during the strike because the supervisors and engineers operating them “won’t push the units as hard,” John R Auers, executive vice president of Dallas-based Turner Mason & Co., said by phone. “The key will be to run them reliably and safely.”

Steelworkers Union

Only one refinery has curtailed production amid the strike. A full walkout of USW workers would threaten to disrupt as much as 64 percent of U.S. fuel output. The United Steelworkers union represents employees at more than 200 refineries, terminals, pipelines and chemical plants.

“The refineries have run just fine in the past,” David Hackett, president of energy consulting company Stillwater Associates, said by telephone from Irvine, California, on Monday. “The engineers are interested in maximizing the performance of these plants, whereas the workers may not be as motivated.”

Union officials and Royal Dutch Shell Plc., representing companies including Exxon Mobil Corp. and Chevron Corp., began negotiations amid the biggest collapse in oil prices since 2008. Crude lost half its value in six months as the Organization of Petroleum Exporting Countries failed to reign in production amid record U.S. output.

The drop in prices has squeezed margins refiners earn for turning crude into fuel. Refineries would have made an average $14.45 a barrel over the past three months turning three barrels of crude into two of gasoline and one of diesel, down from $20.83 a year earlier, based on futures prices.

The current refinery margin environment is not as favorable to unions as last year “because margins have been compressed,” Broadbent said. “The unions may start feeling pressure from members.”

–With assistance from Lynn Doan in San Francisco, Barbara Powell in Houston and Jessica Summers in New York.

Copyright 2015 Bloomberg.