Gas prices take center stage in Newsom’s special session
Newsom proposes law to require oil companies to maintain a certain amount of supply; critics say it will lead to higher prices for consumers
STATE — The state legislature is holding a contentious special session to tackle the issue of rising gas prices.
Gov. Gavin Newsom has alleged oil companies and refineries are not backfilling their supply when they go offline for maintenance or emergencies causing prices to spike. However, Senate Pro Tem Mike McGuire (D-Healdsburg) locked horns with Newsom and refused to convene the senate for the special session earlier this month, but softened his stance after meeting with Newsom, according to reports.
McGuire said later he would convene the senate if the assembly passes the proposal. He said legislators have concerns over whether the proposal may increase gas prices for consumers.
Newsom convened the special session on Sept. 1. His proposal would require oil refiners to maintain a minimum amount of oil reserves to tap into during maintenance or when the supply drops.
“It should be common sense for gas refineries to plan ahead and backfill supplies when they go down for maintenance to avoid price spikes,” Newsom said in a statement. “But these price spikes are actually profit spikes for Big Oil, and they’re using the same old scare tactics to maintain the status quo. We look forward to working with our Legislative partners during the special session to act on this urgently needed legislation.”
The proposal has sparked massive backlash as oil companies, market analysts and others say Newsom’s actions are performative and will lead to new costs being passed through to customers. Oil companies and critics of the proposal have said they will need to construct new facilities to hold supplies, thus leading to higher prices, according to reports.
The average price in California is $4.758 per gallon for regular gas as of Thursday, while the national average is $3.242, according to AAA. The average price in San Diego County is $4.714. The state average for diesel is $4.966.
The California Energy Commission, meanwhile, reported withholding stock to maintain the minimum could lead to increased prices to downstream markets and could increase the average price for refiners to maintain more storage.
The CEC reported in 2022 the factors driving the state’s gas prices include the global crude market, geopolitical issues, isolated refinery market, cleaner fuel blends, environmental program costs and taxes.
The CEC and other watchdogs report the total taxes and fees is $1.21 per gallon.
In addition, governors Katie Hobbs (D-AZ) and Joe Lombardo (R-NV) sent a joint letter to Newsom to withdraw his proposal as it would impact gas prices in those states. Both Arizona and Nevada receive their fuel supplies through pipelines from California.
According to the CEC, 11 major refineries in California provide most of Nevada and half of Arizona’s transportation fuels. The refineries produce at least 1.6 million barrels of crude oil per day.
“In their recent report, the California Energy Commission (CEC) explicitly states that SB-950, now introduced as ABX2-1, ‘may artificially create shortages in downstream markets,’ which would raise costs for consumers in Arizona and Nevada,” the letter reads. “This conclusion alone is deeply troubling and warrants bipartisan, regional communication on this legislation before proceeding. Further amplifying our concerns, refiners have raised the alarm that refinery inventory mandates could result in supply shortages and potential refinery shutdowns, which would have grave impacts to our shared economies and transportation infrastructure across the West.”
Newsom’s statement said the state’s gasoline price watchdog found in fall 2023 gasoline prices spiked largely due to refineries going offline without adequately planning to backfill supplies. He said it caused refining margins to spike as spot and retail prices jumped — indicating that refinery margins made up the largest proportion of the price spikes between July and September 2023.
Newsom said if the proposal had been in place last year, residents would have saved hundreds of millions, perhaps billions, of dollars at the pump, citing an analysis by the Division of Petroleum Market Oversight.
However, Patrick De Haan, a gas analyst with GsBuddy, said in September 2023 two refineries in Southern California had unexpected outages, i.e. smaller or medium maintenance issues, while two others were undergoing routine maintenance, which slows production.
He said refineries usually conduct the maintenance during the slower spring and fall seasons, but the addition of two outages at the other facilities strained the supply chain. The winter season has higher demand due to more diesel fuel needed for heating homes without natural gas in rural areas, De Haan said.
One big difference between the state and the rest of the country is California operates under its own mandates, while the other states follow guidelines from the U.S. Environmental Protection Agency (EPA), he said.
Because California has this exemption, the California Air Resources Board (CARB) sets state-level rules and when refineries suffer unexpected issues, the regulations become more onerous to meet, he explained. The state has its own special blend of fuel for different seasons, but the blending issue has also impacted Arizona, De Haan said.
“Fragmentation creates logistical challenges and drives prices up when systems break down,” he said last year. “California and its various CARB rules and requirements can create hotspots in prices, and that’s exactly what we’re seeing. If CARB used a nationwide standard, we’d be seeing a lot more options, more supply and prices wouldn’t be skyrocketing as much.”
Refineries in northern California, Oregon and Washington were sending gasoline to Southern California, but the refinery challenges in Southern California have pushed the supply chain hard.
Also, Chevron was the latest major company to pull up stakes and relocate its headquarters from California in August. The oil giant, which had been headquartered in California for 145 years, also battled with Newsom and the state over one of its refineries, policies raising costs and hurt consumers and discouraging investment, the company told the Wall Street Journal.
California Attorney General Rob Bonta filed a lawsuit against Chevron last year and other oil companies alleging the companies didn’t inform the public of the effects of burning fossil fuels and those impacts on climate change.
Another reason for Chevron’s move is the state limiting profits as the state has alleged price gouging, a law Newsom signed last year. Chevron has denied holding supplies back amid contentious battles with the state and federal government.
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