Why are gas prices in California so high and supplies so unstable?
California officials have received repeated warnings over the past two decades that the state’s unique gasoline blend is likely to experience supply shortages and sharp price spikes.
But despite multiple reports and special committees, California is struggling to find solutions as it tries to rapidly reduce its reliance on fossil fuels.
Motorists have been reminded of this in recent weeks as prices hit record highs in an increasingly fragile gasoline market, after nearly half of the state’s refineries experienced recent or ongoing outages. , pushing the West Coast’s gasoline supply to its lowest level in a decade.
Yet the heads of state remain far from a comprehensive solution.
“We need to make longer-term plans and not just wait for the crisis to be upon us,” said Severin Borenstein, director of UC Berkeley’s Energy Institute at the Haas School of Business, who served on statewide committees in 1999 and 2015 aimed at finding possible solutions for the state’s volatile fuel market.
None have been implemented, he said.
“There are steps we could take to try to smooth out this ‘fluctuation in the gasoline market,’ Borenstein said, ‘but that requires public policy.’
State leaders and energy companies find themselves balancing California’s aggressive green power goals while providing affordable and reliable power during this time of transition.
“Do I have the new infrastructure fast enough before I pull out the old infrastructure, and what if you’re in the middle?” said Amy Myers Jaffe, chief executive of Tufts University’s Climate Policy Lab and former executive director for energy and sustainability at UC Davis.
“The way we do it now is you just let fuel costs go up and we leave the poor with no way to go anywhere…. So what [California leaders] standing up against the oil companies is not a solution.
Same problems… two decades later
Gov. Gavin Newsom’s decision last week to switch to the state’s easier and cheaper winter fuel mixture early has been credited with minor relief at the pump. But experts say the movement alone does little to remedy a situation that continues to reach crisis levels. The average price of a gallon of gas remains well above $6 in California, about 70% higher than the national average, according to the American Automobile Assn.
“The state has set ambitious goals for the energy transition, but it’s not very well planned,” said David Hackett, president of energy group Stillwater Associates. The past few weeks of high gasoline prices could be “an early warning system” for California’s fate if policymakers or businesses don’t act, he said.
In 2015, the state’s Oil Market Advisory Committee — on which Hackett, Borenstein and Jaffe sat — focused on three gasoline price spikes and how officials might “ reduce California’s exposure to these types of events,” the final report states.
Although the committee’s findings are not concrete, the report “urges[d] the state to establish an organizational structure and commit resources” to investigate the issues further. Many of the ideas reflected recommendations made by the California Attorney General’s Gas Pricing Task Force nearly two decades earlier, such as creating a gasoline stockpile, increasing oil refiner transparency and the relaxation of certain environmental requirements in times of increased market pressure.
Jaffe and other experts said this week that a reserve of gasoline, operated either by the state or by refineries themselves, could help reduce price spikes by stabilizing inventories. Many European countries, Japan and South Korea require refineries to maintain certain inventory levels, which the Biden administration has also recently proposed.
Other countries “don’t wait for the trading community to find it profitable to hold inventory, they require refineries to hold a minimum level of inventory,” Jaffe said. “For a decade I’ve been saying we have to do it in the United States, and I’ve certainly said it has to be a requirement for the state of California.”
The Attorney General’s report on gasoline prices released in 2000 indicated that a “state-owned gasoline reserve” was a possible option for “spiking price mitigation”. State leaders and experts then listed “the relative lack of competition” among refiners, supply constraints on California’s “unique clean-burning gasoline” and higher state taxes as three of the main points driving up prices – the main points that analysts continue to cite today.
Andrew Lipow, president of consulting firm Lipow Oil Associates, agreed that a gas reserve like the United States’ for crude oil could help, but said another way to cut costs would be to relax some of California’s strict emergency fuel regulations, though this comes with environmental trade-offs.
Other ideas, such as building more refineries or a new pipeline to California, stand in stark contrast to state goals to move away from fossil fuels and related infrastructure.
Lipow said a more environmentally friendly option would require amending a decades-old federal law that only allows “American-made” ships to ship goods between U.S. ports, which has forced California to rely on foreign imports when gas supplies are low, increasing costs.
But Jaffee said the state must urgently find comprehensive solutions to its current dependence on gasoline, such as investing in public transit, new technologies and affordable housing, while using short-term options, such as subsidies and gasoline incentives, to achieve this. . She supports ambitious state goals to ban the sale of new non-electric vehicles by 2035, and a proposal to do the same for large diesel trucks by 2040, but wants to see a workable path there. – without ignoring the current need for gasoline power.
“What are we going to do to make this mid-transition?” said Jaffe. “We should create ways to provide mobility – not fuel – to people who need it.”
Newsom and state energy officials have again blamed on oil and gas companies, accusing the companies of “ripping off” Californians. Although Californians have long paid more at the pump than their neighbors — a premium often attributed to state environmental laws, taxes and the special blend of gases that are less harmful to the atmosphere — state leaders say This recent spike showed a worrying gap between spending and price tags.
“The data shows that even though crude oil prices have fallen and state fees and taxes have remained unchanged, the price at the pump has still increased because refinery costs and profits have more than tripled. , now representing $2.18 for every gallon of gasoline Californians buy,” California Energy Commission Chairman David Hochschild said in a statement Wednesday. He asked for information about the “sudden gap between national and California prices” from oil refiners in the state, which produce the vast majority of gas sold in California.
He also pointed to two instances over the past decade where refineries had unplanned maintenance issues: in September 2019, when five refineries experienced outages and prices soared by about 34 cents per gallon, and the 2015 explosion at a Torrance refinery that caused an increase of 46 cents. .
“Refinery maintenance alone — especially scheduled maintenance — cannot explain a sudden $1.54 increase in what refineries charge for every gallon of gasoline Californians buy,” Hochschild said. .
However, Ed Hirs, an energy specialist for the University of Houston, disputed the governor’s claims, saying he had seen no hard evidence of rising prices during this surge.
“The real problem is that you’ve lost several hundred thousand barrels per day of refining capacity,” Hirs said. “And to make up for that supply, people have to move supplies from other parts of the country, and that only costs money.”
Newsom on Friday called for a special legislative session in December for lawmakers to consider passing a new tax on the excess profits that oil companies make from soaring gas prices, saying the idea that the surge could be caused by maintenance is “absurd”.
Executives from Valero, which operates two of the state’s 11 gasoline refineries, warned in a letter Friday that additional costs, such as a new tax, “will only further strain the fuel market and have a negative impact on refiners and ultimately these costs will be passed on to California consumers.”
In response to the Energy Commission, Valero and PBF Western Energy, which also operates two gas refineries in California, denied any form of price gouging or market manipulation, instead blaming numerous regulations and policies. of the state who have made such a tightening. market.
Although oil companies have taken advantage of such a situation in the past, Hirs said, confirming that it needs “serious research”. A federal judge in San Diego recently dismissed a lawsuit that alleged some of the world’s biggest oil companies colluded to keep supplies low in California, driving up profits.
Jaffe said it was too early to tell if there had been market manipulation, but with a limited number of refiners in California – many of which are owned by the same company – there are “multiple ways for refiners to mess with the system. She called for proper regulation, but said ideally more oil conglomerates would respond to market changes and switch to greener energy while maintaining the ability to supply the gasoline people rely on.
“Automakers across the United States are now changing their manufacturing platforms,” Jaffe said. “Why can’t we [oil companies] invest in new infrastructures, while ensuring their [gasoline] services?”