Fuel maker refines plan to hike output, cut emissions

Can an oil refiner double fuel production and cut greenhouse gas emissions at the same time?

The task is so daunting that no U.S. refiner has even attempted it. But Jeff Morris is proposing to do exactly that with the two Southern California refineries his company bought last year.

Morris is chief executive of Alon USA Energy Inc., which purchased Paramount Petroleum Corp. and Edgington Oil Co. for a combined $460 million. The twin deals included small refineries in Paramount and Long Beach, which make mostly asphalt and have been combined to operate as one plant.

“We may . . . become the lowest-emission refinery in California, and if we are, logic would say probably the lowest in the United States,” Morris said in an interview. A preliminary engineering review indicates that the refinery’s overhaul could double fuel output while reducing by at least 7% the production of carbon dioxide and other greenhouse gases, which contribute to global warming.

Alon’s project is one of just a handful of proposals aimed at boosting gasoline and diesel output in California, where fuel production falls short of demand and the environmental standards are the toughest in the nation.

The state’s supply gap has widened steadily in recent years because, despite rising fuel consumption, most California refiners have limited their investments to satisfying environmental mandates or projects that increase profit but not production.

With supply so strained, even moderate production gains can help ease prices -- either by reducing the need for expensive imports or diluting the effect when production falters at another refinery. For that reason, state energy officials generally look favorably on expansion projects like the one proposed by Alon.

Such expansions, however, almost always yield more greenhouse gases and more pollution for the surrounding communities. So environmentalists are skeptical about Alon’s emission-reduction claims.

“We’re being met with a mixture of intrigue and incredulousness,” said Morris, who has outlined the company’s plans in meetings with the mayors of Long Beach and Paramount, the refinery’s immediate neighbors, and others.

But Alon’s proposal isn’t just unusual; it’s also highly pragmatic, given the intense scrutiny of any refinery project by regulators, politicians, environmentalists and community groups. Dallas-based Alon needs permits and agency approvals to proceed. And speed is important, too -- every month the expansion project is delayed means lost profit in California’s lucrative fuel market.

“I believe with this approach we have a higher probability of getting the project permitted, and maybe a higher probability of getting it permitted earlier,” Morris said. At a minimum, “it should be easier than the other approach” of pushing a project that boosts overall emissions.

Since the 2006 passage of AB 32, California’s aggressive greenhouse gas reduction initiative, the state is more focused than ever on slashing emissions, which puts greater pressure on refineries and other polluters with new projects.

As part of the climate change initiative, the California Air Resources Board recently ordered refineries and other big plants to track their greenhouse gas emissions in 2008 and begin filing annual reports with the state the following year. Previous reporting requirements covered many pollutants, but not greenhouse gases.

“It’s great to hear that the refineries are finally getting worried about greenhouse gases,” said Julia May, a senior scientist with Communities for a Better Environment, a California group that pushes to cut industrial pollution. Alon’s proposal, May said, has “a good goal. But let’s see the numbers.”

Barry Wallerstein, executive officer of the South Coast Air Quality Management District, underscored the point. Given the state’s mandate to cut greenhouse gases and the urgent need to reduce smog in Southern California, he said, “all the existing refineries are going to have to continue to reduce pollutant emissions.”

Wallerstein, whose agency must sign off on Alon’s project, met with Morris for an initial briefing and came away hopeful, but not necessarily convinced.

Morris “sees a good business case for investing in these two independent refineries and providing fuel and asphalt for the California market, and recognizes that that also entails significant environmental improvements,” Wallerstein said.

“He walked us through some of the ideas they have for revamping the facilities . . . and he seemed to be very sincere in what he was saying. The proof will be in the follow-through and what’s contained in their application.”

The two refineries now owned by Alon operated independently until they were sold last year. The Paramount plant made asphalt as well as relatively small amounts of gasoline and diesel. The Edgington facility, three miles away in Long Beach, made only asphalt.

Connected by pipelines and operating as a single refinery, Alon’s Southern California facilities can process up to 90,000 barrels a day of crude oil, but operated at roughly 60% of that under previous owners.

By running the refinery at full capacity and adding equipment, Alon plans to make 47% more gasoline, boosting output to about 877,000 gallons a day. The plant’s total daily fuel production, which includes gasoline, diesel and jet fuel, would more than double to about 58,700 barrels, or 2.5 million gallons.

The higher production is a drop in the gas bucket compared with the state’s daily consumption of about 43 million gallons of gasoline. However, because in-state production has not kept up with demand, anything that helps close the gap reduces California’s need for imports and may allow prices to ease.

Alon’s project is expected to cost about $200 million and, together with other improvements, would boost the refinery’s income by $100 million a year, Morris said. The company hopes to complete the work by the end of 2010.

To reduce greenhouse gas emissions, the company would install new gas-making units as well as upgrade existing equipment that is decades out of date.

“Part of it is bringing us up to the standards of the other refineries,” Morris said. The company also would install extra systems that were included in the project solely to cut emissions, he said.

After the project, the refinery’s emissions would be 7% below current permitted levels and would amount to a 64% reduction in emissions per barrel of fuel produced, according to Jacobs Consultancy Inc., which Alon hired to review its plans.

Alon recently began engineering work on the project and expected to file a formal permit request next summer. Once the necessary details are submitted, environmental groups, air-quality regulators and others will do their own analyses.

Despite the projected pollution cuts, approval of the proposal is far from assured.

Wallerstein said that because the two refinery sites were three miles apart, the air board could reject Alon’s assumption that it would be allowed to combine the existing emissions permits of the two plants to establish a single emissions limit.

In addition, the air board would take a broad view of emissions, and the greenhouse gas benefits could be offset by increases in other pollutants, such as particulates and nitrous oxide, Wallerstein said. “What we really need to hear about is the entire group of pollutants.”

And May, the refinery expert at Communities for a Better Environment, has doubts. She worries that Alon would be processing dirtier types of crude oil and that it would sidestep accounting for emissions from the production of hydrogen, which is integral to such projects but sometimes performed off-site by another company.

May also questions whether Alon should give itself credit for upgrading outmoded, pollution-spewing equipment. “They really shouldn’t be allowed to lump in reductions that they should have made years ago,” she said.

Morris said Alon was considering using hydrogen from an outside supplier. But he said the greenhouse gases associated with hydrogen production are included in Alon’s total emissions estimate. The refinery would increase its use of certain cheaper oil varieties, Morris said, but the overall crude quality would be the same and there would be little or no effect on emissions.

The company plans to meet with May’s group, the Sierra Club and others once the project’s initial engineering is done.

“I’m convinced that we can achieve at least what we’ve presented,” he said. “What Barry [Wallerstein] and others are wanting us to do now is to prove what we’re saying, and we intend to do so.”

elizabeth.douglass@latimes.com

---

(BEGIN TEXT OF INFOBOX)

Alon USA Energy Inc.

Headquarters: Dallas

Chief executive: Jeff Morris

Operations: Refineries and related facilities in California, Oregon and Texas; operates more than 300 convenience stores in West Texas and New Mexico that are mostly branded Fina and 7-Eleven. Alon supplies fuel to 800 Fina-branded gas stations operated by others.

California refinery: Facilities in Paramount and Long Beach that are connected by pipelines and operate as a single refinery capable of processing up to 90,000 barrels a day of crude oil into asphalt, gasoline and diesel. The refinery is California’s largest producer of asphalt.

Refinery employees: 250 plus about 100 contract workers

Majority owner: Alon Israel Oil Co.

Source: Alon USA Energy Inc.