Refinery Workers to Reject Offer, Threaten to Strike
By Aaron Clark and Jordan Burke
Jan. 29 (Bloomberg) -- The United Steelworkers union plans to reject a contract offer from Royal Dutch Shell Plc, setting the stage for a nationwide strike of 30,000 workers at U.S. refineries processing about two-thirds of the country’s oil.
Failure to reach a new accord “poses a real threat of strike action,” Gary Beevers, the Steelworkers’ international vice president in charge of the talks, said in a written message to union members. The offer is the third made so far by Shell and all have been rejected by the union, which is seeking a “substantial wage increase” with a cost of living adjustment.
Shell offered union workers a three-year contract with a $500 signing bonus and a 2.5 percent hourly wage increase in the second and third years, the memo showed. Workers would receive a 75 cent-an-hour pay increase in the first year. The current agreement expires at 12:01 a.m. on Feb. 1. Members have already authorized the union to call a strike.
“This is a contract negotiation that the market needs to take seriously because the impact of a strike is potentially extreme,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York.
Gasoline futures for February delivery rose as much as 5.91 cents, or 5 percent, to $1.2426 on the New York Mercantile Exchange after Bloomberg reported the refinery workers would reject the latest contract offer and threatened to strike.
“Shell is optimistic that a mutually satisfactory agreement with USW can be made at this point,” said Stan Mays, a spokesman for Shell. Mays declined to comment further. Shell is negotiating on behalf of refiners across the country.
Strike Authorization
“At this time no location is authorized to extend the collective bargaining agreement without specific authorization from me,” Beevers said in the memo, dated yesterday.
Shell and Exxon Mobil Corp. are preparing to keep their U.S. plants running in the event of a walkout. Refiners plan to use managers and other non-union employees if necessary to keep plants operating.
“We have made arrangements to operate the plants until a successive collective-bargaining agreement is reached,” said Prem Nair, a spokeswoman for Irving, Texas-based Exxon Mobil, the world’s largest fuel maker. “It would be business as usual. We don’t anticipate any supply impact.”
The threat of a strike comes amid declining fuel demand and a recession that pushed the U.S. unemployment rate to the highest level in almost 16 years.
Cutting Capacity
Valero Energy Corp. and Houston-based ConocoPhillips, the two largest refiners by U.S. capacity, are among companies slowing fuel output after profit margins narrowed. Refiners made gasoline at a loss, as indicated by New York futures prices, for a record number of days in the fourth quarter as fuel prices failed to keep pace with crude-oil costs.
Regular U.S. gasoline prices at the pump average $1.842 a gallon, according to AAA, the nation’s largest motorist club, down 55 percent from a record of $4.114 reached in July.
“We already have the U.S. refining capacity operating at 82.5 percent,” said Evans of Citi Futures. “If you were even to drop that to 75 percent, that would be a big deal. That would give us an operating rate comparable to what we had when the major hurricanes hit the Gulf Coast” last year or in 2005.
BP Operations
The one refiner that said it will idle plants in the event of a strike was London-based BP Plc, Europe’s second-largest oil company. BP doesn’t expect a shutdown of its four unionized U.S. plants because of progress in the negotiations, spokesman Scott Dean said. If a strike is called, it would affect BP refineries that can process 1.3 million barrels of crude a day.
Valero, based in San Antonio, has three plants that are subject to the negotiations, including operations in Delaware City, Delaware; Memphis, Tennessee; and Port Arthur, Texas.
The company has contingency plans for a work stoppage, said Valero spokesman Bill Day, who declined to say whether plants would stay open.
San Ramon, California-based Chevron Corp., the second- biggest U.S. oil company, may keep operating its plants if a strike occurs. “Employees have a right to strike,” company spokesman Sean Comey said. “We have the right and responsibility to maintain operations.”
Refining Workers
A strike could affect 58 percent of U.S. refinery workers and about 64 percent of the nation’s fuel-making capacity, said Lynne Baker, a spokeswoman for United Steelworkers. The current contract was reached in 2002 and was extended in 2005.
The union’s national bargaining policy calls for higher wages, including a cost-of-living adjustment, as well as full medical, dental and vision-care benefits for workers and retirees. Local unions also may call strikes if they don’t reach agreement on issues such as work schedules and overtime, Baker said.
One of the locals is Steelworkers District 13-423, which covers members who work at Valero’s Port Arthur plant. It last called a strike in 1980, District 13-423 committee chairman Bobby Hollis said in November.
The unions are required to give employers 24 hours notice if there will be a strike, said Lynn Westfall, a spokesman for San Antonio-based refiner Tesoro Corp. Shell, based in The Hague, is serving as lead negotiator for the companies.
Frontier Oil Corp.’s El Dorado, Kansas, refinery is among plants that could be affected.
“We have agreements with our union folks that they won’t walk right out the door,” said Kristine Boyd, a spokeswoman for Frontier. “They would at least stay long enough to bring the plant down safely if we got to the point.”
Boyd declined to say if Frontier had plans to keep the refinery operating if a strike occurred.
Husky Workers
Calgary-based Husky Energy Inc.’s Lima, Ohio, refinery doesn’t face the possibility of a strike by its 200 union workers because their contract doesn’t expire until mid April, said Graham White, a company spokesman.
Lyondell Chemical said about 500 of the 950 workers at its Houston refinery are union members.
“We have developed appropriate contingency plans to supply fuel products to U.S. consumers,” spokesman David Harpole said. “We continue to negotiate in good faith.”
Lyondell inquired about renting shower trailers from Pasadena, Texas-based Precision Structures, Inc., Doylton Davis, Precision’s owner, said in a telephone interview.
ConocoPhillips has plans to use salaried employees to keep refineries running and could help meet customer requirements with fuel from plants that aren’t affected by the strike, spokesman Bill Stephens said.
