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US refiners draft strike contingenies, as talks start

Fri, 20th Jan 2012 21:57

By Erwin Seba

HOUSTON, Jan 20 (Reuters) - U.S. oil companies are bra
cing for a potential strike by refinery workers and have plans to keep plants operating if negotiations which began this week for a new labor deal break down.

Representatives of the United Steelworkers union and oil companies began meeting to hammer out a new three-year national contract before current contract expires at 12 a.m. on Feb 1.

In September, the head of the USW negotiating team, union International Vice President Gary Beevers said without improvements in health and safety protections in the new contract, USW members would walk off their jobs.

Most sector analysts expect a resolution to the talks before a potential work stoppage, which could shut as much as 6 percent of the nation's refining capacity in early February.

The last nationwide strike was in 1980 and lasted three months, and most refiners have prepared temporary replacement workers from salaried employees to keep their refineries in operation if a strike occurs.

Still some refiners would opt to shut refineries, with 1.06 million bpd, or 6 percent of refining capacity under threat by the Feb. 1 deadline, according to sources familiar with refinery operations. Another 5 percent, about 920,000 bpd, would likely go off-line temporarily between early February and mid-April if a strike were to last that long.

'I think at the end of the day, they'll agree on wages, health care and new language on health and safety,' said Andrew Lipow, president of Lipow Oil Associates LLC in Houston.

'I don't think there will be a nationwide strike. There might be some isolated locals that have some problems. The impact would be quite small.'

When considering whether to run the refinery with back up staff, companies can consider safety issues or whether they want to send a message to the union, sources close to refinery operations said.

Most refiners have trained supervisors to take on operator duties, as is done every three years prior to contract talks, according to sources and analysts.

Training of salaried employees to operate refinery units was underway in the fall, sources said.

The U.S. product market is already looking tighter due to the shutdown of the Hovensa refinery in the Virgin Islands due to poor margins.

The USW represents hourly employees at 69 U.S. refineries accounting for 64 percent of national refining capacity. The contract covers 30,000 workers at oil production facilities, pipelines, petrochemical plants in addition to refineries nationwide.

The U.S. Energy Information Administration said on Thursday that refinery utilization last week was 83.7 percent of national capacity, which is about 17.3 million bpd. High prices and economic concerns have damped fuel demand, with consumption of gasoline and distillate fuel trailing levels seen a year ago.

Analysts said poor refinery profits in some regions could make shutdowns attractive for some companies if workers did down tools.

'Refineries are not running at high levels of utilization because demand for refined products is low due to the bad economy,' said David Hackett, president of Stillwater Associates of Irvine, California. 'They'll probably decide to take a month off if there's a strike.'

The USW has also been tight-lipped about the talks so far.

'We're looking forward to negotiating a collective bargaining agreement with the industry but we don't intend to negotiate in the media,' said USW spokeswoman Lynne Hancock. 'We'll be negotiating at the bargaining table.'


Among the major oil companies, Chevron Corp and Shell Oil Co, and Motiva Enterprises, Shell's joint refining venture with Saudi Refining, said they would continue to operate their refineries.

'Regardless of the status of the union contract negotiation talks, we fully anticipate our facilities continuing to run at a production capacity appropriate to meet the needs of the market,' said Chevron spokesman Gustavo Santoyo in a statement.

Shell Oil, the U.S. unit of Royal Dutch Shell Plc is leading the negotiations on behalf of oil refiners.

A BP Plc spokesman declined to comment on the oil major's plans, but sources familiar with the company's plans said the firm could shut down three union-represented refineries in the event of strike.

'They're going to run out of the same playbook as last time,' one of the sources said. During contract negotiations in 2009, BP announced it would shut its refineries in Texas, City, Texas, Whiting, Indiana, and Carson, California.

(Editing by Lisa Shumaker and Alden Bentley) Keywords: USA REFINERY/STRIKE

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