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California Voters Want High Gas Prices

October 15, 2012

Some people wonder why Californians pay so much for gasoline.  The answer is that Californian’s asked for high gas prices.  The California voter is also the solution to lower prices.

Let me get a potential objection out of the way first.  Any store will charge you as much as it can.  It is the COMPETING store, the competing seller, that holds prices down.  It is the threat that you the buyer will buy somewhere else that makes the seller lowers his price.  Gas stations are no different from your grocery store in that regard.  Gas stations keep prices down as they compete for your business.  It isn’t the gas stations and suppliers that raised the cost of fuel, they simply passed on the prices they pay to distributors are refiners.

Some people will claim the high pump price is caused by the gas station gouging for extraordinary profits.  Stations are no more and no less greedy today than they were last month.  They are not greedier than stations in other states.  California gas stations make less than 2% profit on gross sales.   Many have closed because they could not buy gasoline at competitive prices from their distributors.  So what happened to drive up the price?

We have a few dozen refineries in California and they operate at near full capacity of 95% utilization.  They can’t produce  more.  These existing refineries are sophisticated facilities that can crack heavy crude and convert it into gasoline, diesel and jet fuel.  Recently they suffered a refinery fire and an electrical disruption.  They also changed operations to produce the winter gasoline blend required by California law.  That restricted supply and provoked the price spike.  A deeper question is why there are not more refineries.

Ten California refineries have closed in the last 30 years.  Most of these facilities could not get outside supplies of crude oil or could not meet state requirements.  New refineries will not be built in California due to the strict regulatory and permitting process.  Note that the permit process includes HOW THE REFINERY LOOKS and if the new refinery will upset native bushes and birds!

Permit features include-

  • Changes in visual quality
  • Disturbances to vegetation and wildlife
  • Emissions from floating roof tanks
  • Potential air, water and soil contamination from earthquake-damaged tanks
  • Increased tanker traffic and potential for spills at marine and transport facilities

Existing refineries that wanted to expand faced billion dollar permitting and operating fees from local governments.  I call it ransom, but I’m sure the local government called it a transient materials fee enhancement.  Refiners decided not to expand when a local government could seize their profits at any time.  California voters approved those regulations.  The California voter elected representatives who legislated the strict permitting process that keeps new refineries out of California.   Now California voters pay the price.  That is why there is no new capacity in the pipeline.

Taxes and fees add to the price at the pump.  These taxes and fees are three times larger than the profits earned by the oil companies in California.  Yes, the state and cities make more profit than the oil producers.   They severely restrict drilling new oil wells  (and here.)

Horizontal drilling and fracturing has been used for years in California, but now there is a proposed moratorium on converting old wells to horizontal drilling and hydraulic fracturing.   This limits the local supply of oil from California and requires that refiners import more oil from out of state.  You voted for that.

California does not import gasoline because state environmental regulators require special additive blends.  In a state that spans Death Valley below sea level to the Sierras peaks, Californians are required to have a summer and winter blend to satisfy the dense population centers of LA and San Francisco.  These requirements for boutique gas blends limit imports of gasoline and keeps gas prices high.  These state mandates shield refiners from out of state competition.  I’m sure the refiners have shown their appreciation to the legislators’ campaign funds if only to stay in business.  If you’re from California, you voted for that.  This isn’t an accident.  State and federal government promised us higher costs.

Expect more of the same.  California assembly bill 32 restricts carbon based fuels until our use drops to 1990s levels.  Californian’s voted for those taxes, fees and regulations.  They now have exactly what they asked for.


Robert has no pity

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