UPDATE 2-Judge tells Chevron to stop Calif. refinery work

(Updates with Chevron comments, paragraphs 4-6, 8-9)

HOUSTON, July 2 (Reuters) - A California state judge ordered Chevron Corp CVX.N to halt a $1 billion project aimed at expanding the types of crude oils its San Francisco Bay-area refinery in Richmond, California, can process, according to court documents released on Thursday.

Contra Costa County Superior Court Judge Barbara Zuniga sided with California environmental activists that the environmental impact report filed to obtain construction permits for a new hydrogen plant failed to depict how pollution from the refinery would be changed by the project and provide a greenhouse gas mitigation plan as required by California law.

“It’s a complete victory,” said Will Rostov, attorney for Earthjustice, which represented California community groups opposing the project.

A Chevron spokesman said the company would begin demobilizing the project and was laying off workers as it weighs its next move in consultation with the City of Richmond, California, which issued the permits.

“Chevron is disappointed with the court’s ruling,” said company spokesman Brent Tippen. “Chevron believes the project was properly analyzed and permitted.”

One hundred workers out of the 1,000 employed on the project have been laid off and more will be let go in the coming weeks, Tippen said.

Zuniga’s order provides a 60-day period for Chevron to demobilize the project, but that work cannot include any new construction, according to the order.

Tippen said the community would lose between $50 million and $75 million in workforce income along with $61 million Chevron had agreed to donate to the city of Richmond.

Richmond will also lose the improved environmental performance the refinery would have gained from greater efficiency and environmental upgrades, he said.

The Richmond City Council granted the permits last summer after a contentious debate. Opponents of the project believe the hydrogen plant will allow the refinery to run heavier grades of crude oil, which contain pollutants like mercury and selenium.

Chevron began construction on the hydrogen plant along with a cogeneration unit in September. The company has said both are needed to replace outdated equipment and make the refinery more competitive in today’s markets.

Large U.S. refiners have been switching their plants to run cheaper, heavy crude oils to reduce costs and increase profits. Hydrogen is used to reduce sulfur content and increase the fuels refined from heavy crude oil.

Under Zuniga’s order, the Richmond City Council must set aside construction permits issued for the project and cannot issue any new permits until the environmental impact report complies with California law.

The lawsuit to halt the project was brought by California Green organizations Communities for a Better Environment, Asian Pacific Environmental Network and West County Toxics Coalition.

“The residents of Richmond do not accept letting Chevron continue to poison our community,” said Tom Nompraseurt of the Asian Pacific Environmental Network in a statement.

The 245,271-barrel-per-day refinery is Chevron’s oldest, having operated for 107 years. It is the largest refinery in the San Francisco Bay area and the third largest in California, the largest U.S. motor fuel market.

California drivers receive most of their motor fuels from the state’s refineries or from imports delivered by ship. There are no pipelines shipping refined products through the Rocky Mountains from refineries in the Midwest and Gulf Coast. (Editing by Christian Wiessner)