Alon USA Energy upping its California refinery ante: pipeline purchase boosts Paramount facility.

Dallas-based Alon USA Energy Inc. has quietly become a player in the Southern California oil refining market.

The oil and asphalt manufacturing company finalized the purchase of a pipeline system from Houston-based Kinder Morgan Inc. for $4.5 million last week. The acquisition will launch the company's plan to boost its refining capacity on the West coast to more than 90,000 barrels per day. Alon said it should have the expansion up and running by the end of next year.

Last spring, Alon purchased refinery facilities from Paramount Petroleum Corp. and Edgington Oil Co. for about $460 million in cash, including about $107 million in debt. The purchase more than doubled the refining capacity of the company since it went public in 2005.

The Paramount transaction included a 54,000 barrel-per-day refinery in Paramount, a 12,000 barrel-per-day heavy crude refinery up the coast in Portland and seven asphalt terminals located in Seattle, Elk Grove, Mojave, Reno as well as Phoenix, Fredonia, and Flagstaff, Ariz. The deal makes Alon the largest asphalt producer in the Western states.

The Paramount facility refines transportation fuel and is the 13th largest in the state. The Edgington refinery has a capacity of approximately 40,000 barrels per day and is linked to the Long Beach dock pipeline, but is utilized primarily to produce asphalt.

Though the Paramount facility is the second smallest of the state's 14 gasoline-producing refineries, the increase in refining capacity could still have a significant impact on California's fuel industry. Citing data from the California Energy Commission, Tupper Hull, a spokesman for the Western States Petroleum Association, said the state's limited fuel supply is affected by even small changes in refining capacity.

"Any expansion of transportation fuel production in California is very welcome news," Hull said. "The supply of transportation fuels in California is extraordinarily tight. Even though this may be a relatively small refinery, any additional supply, if it can moderate the volatility that we've seen in the gasoline and diesel marketplace, is welcome."

Alon said the purchase would increase its port operations to the system, nicknamed the "Black Oil" system, which includes approximately six miles of active and 13 miles of inactive pipelines in Long Beach.

"Logistics are critical in any environment, but they are especially valuable in densely populated areas such as the Los Angeles basin," Alon President and Chief Executive Jeff Morris said in a statement.

Morris added that the pipeline system would allow the company to optimize its current pipeline network, giving them direct access to marine terminals and refineries in the Los Angeles/Long Beach port complex.

BY ALLEN P. ROBERTS JR.

Staff Reporter