By Aaron Clark and Barbara Powell
Feb. 4 (Bloomberg) -- The tentative contract deal struck by labor negotiators and refiners averted a strike that would have idled as many as 30,000 U.S. workers, cut fuel production and likely increased prices in the midst of the deepest recession since World War II.
The union accepted higher wages while giving in over safety provisions after 12 days of meetings in Austin, Texas, with Royal Dutch Shell Plc. The three-year agreement includes 3 percent raises annually.
“We opted to reach a tentative agreement on economic issues and withdrew our bargaining demands for the safety language we and the public sorely need,” said United Steelworkers International Vice President Gary Beevers, the union’s top negotiator. “But let it be clear, we are not finished with our struggles for meaningful change in the health and safety arena.”
The workers who produce two-thirds of the gasoline and other fuels made in the U.S. sought higher wages and improvements in plant safety practices after a March 2005 explosion at BP Plc’s refinery in Texas City, Texas, killed 15 people and injured 170.
“The settlement means there will be no interruption in refinery operations, which would have impacted product supply in advance of the gasoline driving season and probably led to higher prices,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.
The International Monetary Fund predicts the U.S., Japan and euro region will simultaneously contract in 2009 for the first time since World War II. The agreement includes a signing bonus for union workers who approve it by Feb. 16 as well as the 3 percent raises, said Eric Hamilton, chairman of the bargaining committee at the Motiva refinery in Port Arthur, Texas.
‘Tough’ Negotiations
“These were tough negotiations given the economic conditions of an economy still in a total free-fall,” said Steelworkers International Vice President Leo W. Gerard in a statement. “The oil companies were not willing to work with us fully to improve process safety.”
The agreement with Shell will be extended to workers at 86 plants, including operations owned by Exxon Mobil Corp., Valero Energy Corp., BP and Chevron Corp. The agreement averted as many as six plant closures and about 1.7 million barrels of daily capacity going off line within days.
Regular gasoline pump prices, averaged nationwide, rose 1 cent to $1.89 a gallon, AAA, the nation’s biggest motoring group, said today on its Web site. Gasoline prices rose almost 10 percent last week on concern over a possible strike.
Shell Reaction
“Shell is pleased that it has reached a mutually satisfactory tentative agreement on national bargaining items with the USW for our manufacturing sites,” said Stan Mays, a Shell spokesman, in an e-mail. “We are optimistic agreements will be ratified at the local level in the near future.”
The union rejected three contract offers from Shell as it tried to strengthen contract language on health and safety. Last week, the union refused a three-year contract with a $500 signing bonus and 2.5 percent increases in the second and third years.
The previous contract was signed in 2002 and extended in 2005. Some individual refiners are negotiating with local unions on additional contract terms that might result in isolated work stoppages.
Exxon, the world’s biggest oil company and owner of the largest refinery in the U.S., declined to comment on the agreement. “All I can tell you is that we have put an offer forward to our local unions,” Kevin Allexon, a company spokesman, said in an e-mail. “Beyond that, I have no further details to share.”
Pattern Agreement
The agreement will likely be copied by other refiners because the provisions for raises, signing bonus and an 80 percent employer health care cost contribution, are “plain vanilla,” said Dominick Chirichella, senior partner of the Energy Management Institute in New York.
“I think everybody is going to buy into it,” Chirichella said. If the unions had won concessions on safety, “those features could have be objected to because different companies might have interpreted it differently.”
The threat of a nationwide strike came at a time when Valero and ConocoPhillips, the two largest refiners by U.S. capacity, were slowing fuel output after margins narrowed. In the fourth quarter, oil processors made gasoline at a loss for a record number of days, as indicated by futures prices, as fuel demand slowed.
“Valero is satisfied with the agreement on the national level, and we’re presenting it to our local unions to ask for their approval,” Bill Day, a spokesman for Valero, said in an e- mail.
BP planned to shut refineries in California, Texas, Ohio and Indiana in the event of a nationwide strike. Valero planned to shut plants in Tennessee and Delaware. Shell and Exxon Mobil, among other refiners, said Jan. 28 that they would keep their U.S. plants running with contingency crews.
U.S. refiners operated at 82.5 percent of capacity the week of Jan. 16, down from 85.2 percent the previous week, according to the Energy Department in Washington.
To contact the reporter on this story: Barbara Powell in Dallas at Bpowell4@bloomberg.net; Aaron Clark in New York at aclark27@bloomberg.net.
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