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The Associated Press February 18, 2010, 10:13AM ET

Utah's oil refineries prepare for annual shutdown

Gasoline retailers say they're feeling tighter supplies and higher prices as several of Utah's oil refineries hold back supplies in anticipation of shutting down operations for maintenance in March.

Tesoro Corp., which operates Utah's largest refinery, played down the impact of the shutdown, saying it comes every year. The company said its North Salt refinery will shut down from March 5 to April 2.

"These are routine events but are planned well in advance, so we intend to meet all of our supply obligations," Tesoro spokesman Lynn D. Westfall said from Tesoro's San Antonio, Texas, headquarters.

The reopening of Utah's smallest refinery on Wednesday, months after a November explosion, was expected to have virtually no impact on keeping supplies or prices in check. Silver Eagle Refinery was operating at half-capacity after restarting a crude-oil processing unit that mostly produces paraffin wax.

Utah has five oil refineries concentrated along a belt just north of Salt Lake City. The state often enjoys low gas prices because it isn't economical for the refineries to ship fuel outside the Intermountain Region. That could change, however, with the completion of a petroleum products pipeline to the Las Vegas area. The project is under review by the U.S. Bureau of Land Management.

Silver Eagle's shutdown in November was overshadowed by problems at Wyoming refineries that also produce some fuel for Utah, said Lee Peacock, president of the Utah Petroleum Association.

"Bottom line is that there has been some constraint of supply along the Wasatch Front due to refinery issues that has had some impact on price," he said.

Utah started out the winter enjoying gasoline prices that were below the national average, he said.

The head of a gasoline stations' group in Utah complained gasoline prices at nearly $2 a gallon are too high for winter, when people drive less and ease demand for fuel.

"Right now, I can only hope our prices come down," said John Hill, director of Utah Petroleum Marketers Retailers Association. "Several of the major producers in Utah are holding back product in anticipation of shutting down for maintenance."

That means gasoline retailers can get their tanks only partly filled, and they run out of fuel sooner.

Silver Eagle said its low-pressure unit that processes waxy oil from eastern Utah was operating smoothly on Wednesday but had little effect on increasing supplies of fuel.

The unit was doing initial processing for some diesel fuel and gasoline, but was mostly making paraffin wax. The wax is used for food preservation -- many apples are given a waxy coat before shipping.

Silver Eagle spokeswoman Cindy Gubler said Crude Oil Unit No. 1 was not involved in the November explosion that damaged equipment and several homes in the area. Company officials accepted investigators' recommendation to shut down the refinery until it was deemed safe to reopen.

The explosion remains under investigation by the U.S. Chemical Safety Board and the Utah Division of Occupational Safety and Health.

"No employees were injured, but it was considered a disaster. We're reviewing their (safety) processes," OSHA operations manager Bill Adams said Tuesday.

Adams issued Silver Eagle the permits it needed to start up some operations.

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