The announced closure of Tesoro Corp.’s oil refinery operations in April signals that Hawaii is about to experience the kind of market shakeup that this isolated, import-dependent state always fears. It also underscores that its steady development of alternative energy sources was absolutely the right path to follow.
Besides those fairly plain observations, the impacts of the shuttering — which means Chevron Hawaii will run Hawaii’s only oil refinery — seem murky, even in the near term. Things are about to get more complicated, but there’s no straight line that can be drawn from the conversion of the Tesoro plant to an import terminal, where the ready-for-sale petroleum products can be offloaded, to any particular change in prices.
The only clear and unfortunate result is that as many as 200 refinery employees will lose their jobs. The state’s immediate responsibility is to offer these people direction and aid in their transition to new positions.
Beyond providing that outreach, public officials must maintain and even step up the effort to increase Hawaii’s homegrown energy product. And the development certainly lends some additional urgency to reach a decision on a potential competing fuel: liquefied natural gas.
That urgency doesn’t negate the safety concerns raised by some who worry about the process of bringing the fuel to shore. But it would help to know, sooner rather than later, whether LNG can be a practical addition to the state’s energy portfolio.
If LNG’s environmental and safety hurdles can be overcome, it may be time for the state to realize that another, domestic energy source, even another fossil fuel, may help consumers in the transition to a more renewable-energy future. Solar and wind energy are better for the planet’s carbon footprint, but ratepayers could use a hedge against high electric bills in the meantime.
The initial reaction to Tesoro’s announcement was eased somewhat by Hawaiian Electric Co., which burns low-sulfur fuel oil to produce the bulk of the state’s electricity. The utility is providing assurances that Tesoro has pledged to meet its contractual commitments, which suggests that a spike in electricity prices won’t be around the corner.
The refinery enabled Tesoro to bring in the low-sulfur crude oil from Asian markets, the raw material that yields the full range of products, from diesel and gasoline to jet fuel and fuel oil. Being able to gauge the market demands and other conditions, and then adjust the production plans accordingly, made for greater flexibility. Bringing in the crude and then breaking it down into all the byproducts certainly had an efficiency, in shipping costs and other factors, that an import terminal can’t exploit. The new business will need to fill its orders through a variety of global sources.
However, analysts are more or less sanguine about what lies ahead. Aloha Petroleum operates almost 100 gas stations, and has ordered most of its gas from the local refineries because the available price was comparable to the cost of importing. But a spike in prices from Chevron would most likely drive Aloha to bring it in from another source at competitive prices, said Fereidun Fesharaki, an East-West Center fellow and expert on the petroleum market. Fesharaki thinks the impact on gasoline prices would be minimal.
We certainly hope he’s right.
Fortunately, Hawaii’s biggest oil customers had advance warning — Tesoro had been seeking a buyer for its money-losing refinery for months — and the marketplace should be able to adjust.
But it is nerve-wracking, without a doubt. And it will be far easier to weather these storms, in the foreseeable future, once oil represents a smaller piece of the energy pie than it does now.
