Key Takeaways
The California Energy Commission (CEC) recently released a report recommending the state take over private refineries to combat future price surges as petroleum demand falls due to California’s ban on gasoline cars.
The CEC thinks it would be prudent to have some refineries run by the state and to import more of the state’s special gasoline blend to ensure adequate future fuel supply.
Governor Newsom decreed all cars sold after 2035 to be electric vehicles, but the CEC warns that lower income people may have to keep a vehicle that runs on gas.
Californians already pay the highest prices in the nation for gasoline because of the state’s climate-justified taxes, fees, regulations, and special gasoline blends no other state requires.
California Energy Commission regulators announced proposed government controls of its petroleum industry, supposedly to combat future energy price surges, according to a report it released on August 1, 2024. According to the CEC’s report, as demand for petroleum decreases, some of California’s nine oil refineries are expected to close. This consolidation could boost the pricing power of remaining refineries, potentially leading to higher gasoline prices. To address this concern, the CEC has proposed a variety of government interventions, including increased regulation of private refineries, the creation of state-owned refineries, and a boost in oil imports. The commission’s stringent regulations and micromanagement of refineries have, however, contributed to operational shutdowns in the industry.
The CEC calls for the State of California to purchase and own refineries, ranging from “one refinery to all refineries in the state.” The CEC, however, questioned whether the presence of State-owned refineries would inhibit an orderly phase-out of refinery capacity as the state’s ban on gas-powered cars takes effect. The CEC also suggested increasing oil imports, saying, “as the transition unfolds, California may wish to consider developing a relationship with a supplier and refiner or marketer to bring California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB) into California via regular shiploads so consumers are assured a reliable import supply.” California’s gasoline is more expensive than in other states due to its unique blend required by state and federal air quality standards, which contributes to the state’s status as a “fuel island.”
In addition, the CEC has suggested implementing new regulations that would require refineries and terminals to keep contingency gasoline reserves to be used during price shocks. This proposal mirrors the Northeast gasoline reserve established under President Obama, which was maintained until the Biden-Harris administration decided it was too costly and closed it this spring.
California is poised to ban the sale of new gasoline-powered passenger vehicles after 2035. However, even with this restriction, many petroleum-fueled vehicles will remain on California’s roads, necessitating fuel. The study also concluded that many “of the vehicles may be owned by lower-income individuals and families, making it even more compelling to identify ways to ensure an affordable, reliable, equitable, and safe supply,” which is an obvious nod to the reality that electric vehicles cost more than many people can afford.
In the past two years, California experienced notable gasoline price increases in September and October, which were not seen in other parts of the U.S. Governor Newsom attributed these spikes to price gouging by the oil industry, leading to the enactment of a gas price gouging law in May. The CEC, on the other hand, pointed to temporary refinery shutdowns due to insufficient oil supply, which coincided with a decrease in drilling permits. The commission noted that while lower gas prices this year were influenced by various factors, including reduced industry costs and environmental program cuts, the rise in gas taxes has kept prices from dropping further. The CEC report emphasized that gasoline remains the primary transportation fuel in California, with demand remaining relatively stable despite price fluctuations.
California leads the U.S. in zero-emission vehicle sales, accounting for over 40 percent in 2022, driven by regulations from the California Air Resources Board. According to the California Department of Motor Vehicles, there are currently 30.8 million cars and light trucks registered in the state. Of these, 1.2 million are battery-electric vehicles (BEVs), excluding hybrids. Most BEVs were sold in the past five years, with 374,000 sold in 2023. Most of the BEVs sold were Teslas, 226,000 in 2023—over 60 percent. The closest rival to Tesla was Chevrolet, selling 19,000 BEVs in the state in 2023, followed by Ford, Mercedes, and Hyundai, each selling 16,000 BEVs.
Despite its reputation for solar and wind energy, California derives 50 percent of its total energy from oil and 34 percent from natural gas, totaling 84 percent from fossil fuels. This proportion surpasses the global average of 82 percent in 2022 and 81 percent in 2023.
Conclusion
The CEC is suggesting that California take over the state’s refineries because of possible gasoline spikes that could occur as the state’s gasoline ban takes effect and refineries shutter or convert to biofuels. The commission has also proposed other government interventions, including expanded regulation of private refineries and an increase in “boutique fuel” imports. The CEC is worried that there may not be enough fuel for Californians to operate their gasoline vehicles as the state transitions to an all-electric fleet, causing gasoline prices to spike. The state and the CEC obviously do not understand that if state regulation forces gasoline demand to fall and a refinery can no longer make money, it would have to curtail production or move out of the state and sell its product elsewhere.
