Shell Walks a Thin Line With Flying J Refinery

With oil prices down from their highs in the summer of 2008, public outrage directed at America’s biggest oil companies has fallen from high boil to a slow simmer. Perhaps that’s why Shell Oil thought it might be able to quietly cut off its crude oil supply to Big West, a refinery owned by the bankrupted truck stop operator Flying J.

Shell thought wrong. Since closing the tap early in January, the company has been publicly accused of market manipulation in an episode reminiscent of the avalanche of negative attention it, along with other oil companies, received in the aftermath of Hurricane Katrina and during periods of high gas prices.

For background, Shell cut off supplies of its own crude to Big West through a pipeline that it owns, due to non-payment by Flying J for deliveries. Within days, a representative of the United Steelworkers, Kevin Cable, blamed Shell for forcing the plant to close, which would have the obvious effect of sending workers home. Closure of Big West could also impact consumers across California, by raising prices for gasoline and diesel fuel.

Within another day, Sen. Barbara Boxer got involved, asking the state’s attorney general to investigate, and newspapers across the state had reported on Shell’s alleged interference.

The first, and perhaps easier, question is whether the accusations are true. The implication is that Shell, in true comic villain style, is conniving to close Big West in order to drive up fuel prices, thus increasing profits at its own stations. Yet Shell was responsible for less than half the crude deliveries to Big West, says others are free to deliver through its pipeline, and claims it’s only interested in being paid. A statement released by Flying J Friday more or less corroborates that story.

The second question is whether Shell should have seen trouble coming. Perhaps not, except that similar allegations were leveled against the company in 2005 when it still owned Big West, and was trying to close the refinery. With history as its guide, it was foolish of Shell not to preempt any accusations by making its actions as public and transparent as possible.

Big West’s problems are likely to play out without any further damage to Shell. But for better or worse, the company is part of an industry whose operation is both opaque and troubling to the average voter; pump prices are a permanently touchy issue. In the long run, incautious handling of company business that could appear, to the public, to influence prices will end badly, bringing unfavorable legislation and permanent dings to already-bad reputations.