The owner of the state's largest oil refinery is studying whether it should stop refining crude oil here and use the site as a terminal from which to distribute fuel.

"It lost money last year and it's continuing to lose money this year," said Lynn Westfall, senior vice president and chief economist for refinery owner Tesoro Corp. "It's something we're concerned about and are looking at."

Tesoro, like other refiners, has been squeezed by high crude oil prices at a time when demand has been dropping. Tesoro's 93,500-barrel-a-day refinery last year operated well below capacity, averaging only 68,200 barrels.

Tesoro's review follows one done by Chevron Corp., which last year contemplated shutting what is the smaller of Hawai'i's two refineries.

Chevron had looked at converting the local 54,000-barrel-per-day facility into a terminal and this week said that option has been taken off the table. Chevron left open the possibility that some of the 2,000 job cuts it is ordering for its refinery operations worldwide may occur here.

"Refining right now is a brutal industry," said Pavel Molchanov, an analyst with Raymond James & Associates who follows oil and gas companies. "It's true everywhere."

Molchanov said Hawai'i also has the added problem of being a small, isolated market where all crude oil needs to be imported.

"Hawai'i is kind of a quirky niche market with its own dynamics," Molchanov said. "But it's also a tough market."

He noted Chevron earlier this week announced it will sell a refinery in Europe. That follows Valero Energy Corp. announcing a shutdown of a Delaware refinery in November, while Royal Dutch Shell Plc said in January it was converting a Montreal refinery to a storage facility.

Westfall said the company is studying alternatives at its seven refineries and has two options under review here.

One is to keep the refinery running, or pieces of it.

The other contemplates a shutdown of the refinery operations and maintaining the facility as a terminal where products refined elsewhere can be stored.

Tesoro's refinery produces about half of the state's gasoline and feedstock for utility generators. It also is the primary supplier of jet fuel and diesel used in cars and trucks.

Westfall said the local operation suffers from being a small market with low growth prospects. He said the company also has uncompetitive contracts to supply fuel to utilities here and has an ongoing need for capital.

"The short-term dynamics are certainly challenging right now."

Financial analysts have periodically inquired on conference calls about Tesoro's plans for Hawai'i because of the operation's low profitability. They've also asked whether Tesoro had looked at selling the refinery. Tesoro also operates about 30 service stations here and employs about 600 in the state.

Westfall said Tesoro's examination of assets here will go beyond whether the operation is profitable. The Hawai'i refinery is one of five the San Antonio-based company has around the Pacific, with others in California, Washington and Alaska working together to fill capacity needs in each other's markets, he said.

Hawai'i also has a strategic value for the company should it pursue expansion into Asia, Westfall said.

The longer-term outlook for the local operation is brighter and Tesoro has continued to pursue renewable energy projects here, he said.

The state is aggressively pursuing a plan to get 70 percent of its energy needs from clean sources by 2030.

That would drastically cut into the current business of the two refineries here.

Tesoro has a half-dozen renewable energy ventures it is pursuing that tie into its ability to produce fuels. These include pilot projects with Envergent Technologies for a bio-crude oil produced from plant materials, an algae-to-fuel project with Phycal Hawaii and a 5-megawatt solar farm with Axio Power Inc.

Tesoro also has agreements with Kuehnle Agrosystems on algae-based biofuel, another with Hawai'i BioEnergy LLC to turn locally grown crops into fuel, and one with UOP LLC, which has a $25 million federal grant to convert biomass into transportation fuels.

"We see a long-term future for this market," Westfall said. But the real issue is how "are we getting through the next couple of years."