LOS ANGELES -- When Shell Oil Co. put its only Southern California refinery up for sale last month amid concern over California's tough anti-smog controls, it may have marked a turning point in the fight for clean air.
Analysts predict that other large oil companies also may close refineries in the area because of the high cost of controlling air pollution. This is likely to have a regional impact on the price of gasoline and such products as jet fuel, and could force oil companies nationwide to step up their search for alternative fuels that create fewer pollutants, according to industrial analysts.
Shell announced in late June that if it cannot find a buyer it plans to close its Wilmington refinery, which produces 130,000 barrels a day in Carson, Calif., near Los Angeles. Shell plans to service the Southern California market through its two other West Coast refineries.
"With the increasingly tough environmental laws, the cost required to achieve compliance and the cost to stay ahead of these requirements, we decided that we did not want to manufacture gasoline here at the refinery in Carson," said Shell spokesman Gene Munger. "Looking at the future and knowing what we know today and what we can anticipate, we decided not to operate here anymore."
Shell's decision to close the refinery if it doesn't find a buyer comes at a time when the oil industry is feeling mounting pressure from environmental groups and state agencies to alleviate the nation's worst smog problem.
Environmentalists say they favor closing the refinery, even if it raises gas prices.
"Like California's standard for cars, our laws for the industrial production and refining of oil products are the most stringent in the nation," said Jerry Martin, a spokesman for the California Air Resources Board. "It has to be, because our problem is so much worse than the rest of the country."
The Air Resources Board said the main reason to close the Wilmington refinery is because it is less efficient than other refineries in the state. "A refinery that is already at a huge disadvantage compared to some others is going to feel the effect of any change in the market," he said.
California has announced plans to create stricter emissions regulations later this year. The South Coast Air Quality Management District Board has added requirements to its 1989 plan to clean up smog in Southern California, such as automatic shutoff switches for gasoline pumps, limiting the time vehicles can idle by curbs and calling on businesses to institute ride-sharing programs. Its purpose is to bring Los Angeles and surrounding areas into compliance with federal standards by 2010.
The U.S. Environmental Protection Agency also is developing regulations under the new Clean Air Act, which is expected to take effect in 1995, with additional restrictions by 2005.
The refinery closing "is an extremely important milestone in the oil industry," said Douglas F. Henderson, executive director of Western States Petroleum Association. "For Shell to conclude that it is no longer in their interest to stick around is a startling development. I think this is the beginning of a trend."
Small oil refineries in Southern California have suffered from tougher environmental regulations and have been forced out of business. The closing of the Shell plant in the nation's largest gasoline market means that larger refineries are also vulnerable, said Henderson.
Analysts said that if more refineries close, gasoline will have to be shipped longer distances to California service stations, increasing the risk of a spill during transportation. Alaskan North Slope crude oil, now refined in California, will be refined elsewhere, Henderson said.
"The California gasoline market is a cutthroat place to do business," Henderson said. "The environmental regulations are so demanding that they can run some of the biggest companies in the world out of this market. Shell's announcement is a symptom of that."
As emissions regulations become more stringent, leading oil companies are searching for alternative fuels that produce less air pollution.
Atlantic Richfield Co. has a newly developed gasoline that it says is as clean-burning as methanol and would reduce some pollutants by more than one-third. Arco said it has no plans to develop this fuel, which it says would cost 16 cents more a gallon, unless California requires all companies to produce a fuel of that standard under the new Clean Air Act.
George Babikian, president of Atlantic Richfield's Arco Products Co. subsidiary, said his company is willing to invest $1 billion to produce a more expensive gasoline called EC-X in its Los Angeles refinery if the state mandates that gasoline meet such a performance standard.
"If you are going to remain in the refining and marketing business in California in the 1990s, it is going to cost you a lot of money," Babikian said. "New fuel specifications are going to be very expensive, because of the regulations that we have to abide by in the refining end of our business."
"The conflict exists over the changing times," said Henry Feniger, president of Get Oil Out, a 300-member organization in Santa Barbara, Calif., that is seeking to eliminate offshore drilling. "The oil industry does not have the free hand anymore."
Feniger said that while his organization's primary objective is to eliminate as much offshore drilling as possible, closing the Shell refinery could aid the environmental movement.
"We are hoping that California, with our new governor, will make much more of a push for moving forward with energy policy reform," said Lisa Weil, policy director of the American Oceans Campaign. "Now that we have had some successes in slowing down offshore drilling and putting restrictions on oil companies, I hope that we can push the state to develop a much more efficient reform program.
"A lot of industries, oil and otherwise, are wondering if it is worth their time and money to try to do business in California because of a lot of stringent requirements," Weil said.