The Multinational Monitor

May 1997 · VOLUME 18 · NUMBER 5

T H E    M O N O P O L Y    M A K E R S

The Social and Environmental Costs
of Oil Company Divestment from U.S. Refineries

by Jenna E. Ziman

ON JANUARY 24, 1997, hundred-foot flames lit up the skies above Tosco's oil refinery near Martinez, California. Fire blazed through the refinery after a pipe in the refinery's hydrocracker unit, which converts a diesel-like fluid into gasoline, exploded. Approximately 500 people, most contract workers, were on the job that night, six in the hydrocracker unit. One worker, Michael Glanzman, died from extensive burns and smoke inhalation, and 25 others were injured. Less than two months later, Tosco told more than 6,000 residents in Contra Costa County (which encompasses Martinez) not to leave their homes after a sulfur dioxide and hydrogen sulfide release sent a rotten egg smell into the community. The accidental release was the second incident of the day at the former Unocal refinery, and the third of the week at refineries in the area.

"The Tosco accident is only one of many in a long line of explosions and fires that have killed and maimed our members, other workers and community residents in recent years," says Robert Wages, president of the Oil, Chemical and Atomic Workers International Union (OCAW). "How many people are going to have to die before we do something to halt this madness?"

One of the causes of this "madness" is that large oil companies are under-investing in and selling off their U.S. refineries, while focusing their investment efforts on new overseas drilling opportunities. For U.S. refinery workers, refinery communities and the environment, the consequences of this strategy are catastrophic.


There are approximately 170 oil refineries currently operating in the United States, and the number is steadily dropping. A decade and a half ago, many of the large oil corporations -- including Chevron, Mobil, Shell, Unocal and BP -- began shifting their investment focus overseas. The companies cut back on investments in their U.S. refineries, with many ultimately selling them off to smaller independent companies. Some companies like Arco and Shell could not find a willing buyer for their refineries, and just shut down operations. Many of the smaller companies have followed suit in recent years, closing many of their refineries. U.S. refinery shutdowns in the last two years include: Barrett Refining in Thomas, Oklahoma; Crystal Refining in Carson City, Michigan; Cyril Petrochemical in Cyril, Oklahoma; Intermountain Refining in Fredonia, Arizona; Tosco Refining in Marcus Hook, Pennsylvania; and Total Petroleum in Arkansas City, Kansas.

Refinery closures have caused refining capacity in the United States to drop 20 percent from its peak in 1982, says Keith Peterson, director of Standard & Poor's global energy group in New York City.

Big oil companies are not fleeing the United States because the country has run out of oil. The U.S. Department of Energy estimates that two-thirds of all the oil ever discovered in the United States is still underground. Companies are leaving because they can get rich quicker overseas.

Refining was the only weak spot in the oil industry's 1996 banner performance -- marked by record profits -- according to the 1997 World Oil Trends study, issued by consultants Arthur Andersen and Cambridge Energy Research Associates. Investment returns come mainly from the sale of chemicals, crude oil and natural gas, not from refining or selling gasoline, according to the study, although the oil companies' ability to manipulate prices between its crude, refining and marketing divisions suggests these conclusions should be taken with a grain of salt.

Royal Dutch/Shell's return on capital in refining is around 7 to 8 percent, for example, less than half the return from its marketing business. Of Chevron's $616 million 1996 first-quarter profit, only $18 million came from gasoline refining and marketing. Of Arco's $370 million 1996 first quarter profit, only $15 million came from gasoline refining and sales.

Environmental regulations are at the top of the oil industry's list of complaints about how hard it is to operate in the United States. "The regulations eliminate the ability to build new refineries," says Barry Lane, Unocal's public relations manager. "So as product demand grows, you've got to get it from some place. Now there is a much greater interest or willingness to cross borders with multinational projects."

Michael O'Connor, Tosco's manager of marketing operations in Seattle, agrees with Lane, blaming stricter environmental regulations in part for higher refinery operating expenses. "I just think companies are looking to get a little higher return out of their assets," he says.

Because the oil industry is capital intensive, salary expenditures do not represent a high proportion of expenses. Yet the oil companies have paid increasing attention to their wage bills in recent years, with bargain basement wages in the Third World contributing to the corporate exodus from the United States.

"The world has changed," Lane says, noting opportunities for oil drilling and refining in the Third World. "There are tremendous opportunities, tremendous resources to be developed, and we're participating in that. These are good high return projects."


The closure of a refinery obviously costs jobs and undermines community well-being. Less apparently, the sale of facilities to independent refiners also often takes a major toll on workers and communities. "A lot of times, when an independent company such as Sun Oil, Tosco or Clark buys up the larger corporations' refineries, it means that the union gets thrown out," says Denny Larson of the Communities for a Better Environment, a California-based pollution prevention organization. "So you lose all those union jobs, and there is a ripple effect on the local and regional economy."

It is not uncommon for oil companies to close plants and then re-open them with non-union workers, or to hire out-of-state contract workers to do repair, maintenance or construction. These practices have contributed to a steep decline in the membership of the Oil Chemical and Atomic Workers union (OCAW) -- an approximately 50 percent drop over the last 15 years.

In March, union workers at four California Unocal refineries being acquired by Tosco accepted a contract that eliminated more than 100 of the 900 jobs for refinery workers in Wilmington, Santa Maria and San Francisco. Tosco threatened to close the San Francisco plant altogether if the workers did not accede to the company's contract demands.

OCAW representatives say the company is selecting union activists for dismissal from the refineries, charges denied by Tosco. The OCAW local that represents workers in San Francisco plans to file wrongful termination charges against Unocal.

Tosco is known for squeezing workers at refineries it has purchased. Last year, the company closed its Marcus Hook refinery in Pennsylvania, which it had purchased from British Petroleum, until the union there agreed to new work terms. Tosco ended up cutting approximately a third of the 520 employees.

The sale of run-down refineries to independent companies also poses major environmental and safety problems.

"We are worried about the independent companies buying up run-down refineries from the larger companies," says Larson. "They don't have the infrastructure for safety and environmental health, nor the programs and staffing that the bigger companies do."

The job cuts and switch to contract workers that often follow independent company takeovers of larger companies' refineries strain the refineries' ability to operate safely. At the California Unocal refinery sites that were taken over by Tosco, fewer workers will now be expected to do exactly the same amount of work as the former larger workforce. The layoffs also include workers in such critical safety areas as firefighting.

The cuts and contracting out have been major contributing causes to the rash of plant explosions and safety incidents in the past decade. Between 1984 and 1991, fires and explosions at U.S. oil refineries and related facilities killed more than 80 workers and injured 651 more. In Contra Costa County in Northern California alone, there were more than 1,700 incidents at 10 major facilities between 1989 and 1995 -- and seven times more incidents in 1995 than in 1989.

The inefficiency of the run-down refineries also results in huge resource waste and large-scale pollution. As a result of oil leaks and inefficient refinery operations, each year the U.S. oil system loses the energy equivalent of Australia's annual petroleum consumption.

One of the serious but largely ignored costs of refinery emission and pollution is injury to surrounding communities. "If you go out and talk to refinery neighbors about the problems they are experiencing, you'll hear the same thing wherever you go: the odors, the spills, the respiratory problems, the skin rashes, headaches, nausea, the noise and vibrations," says Larson.

"People are very upset and concerned about how the industry treats them and how it operates," he adds. "A lot of times they feel that there is nothing they can do."

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