Nov. 30, 2012
By Joseph Perkins
Taking time out from negotiations over the fiscal cliff, a half-dozen U.S. senators asked the Justice Department this week to investigate whether “market manipulation” by California oil refineries led to the run up in gasoline prices the Golden State’s motorists suffered in both May and October.
The lawmakers, led by California Sens. Dianne Feinstein and Barbara Boxer, suggest that “false reporting” by refineries, including Chevron, Valero Energy and Tesoro, “created a perception of a supply shortage when in fact refineries were still producing.” In their letter to U.S. Attorney General Eric Holder, they urge a “refinery-by-refinery probe.”
The lawmakers are disingenuous. They attribute California’s all-too-frequent gasoline price spikes to predatory pricing by evil oil companies, while completely ignoring laws enacted by the state Legislature, rules enforced by state regulatory agencies, that have given California the most expensive gasoline on the U.S. mainland, almost guaranteeing occasional price spikes.
Indeed, even the “independent” energy consultant retained by Sens. Feinstein, Cantwell, et al. to “examine the oil industry on the West Coast,” acknowledges the uniqueness of the Golden State’s gasoline market.
“The West Coast is an ‘island’ in the North American gasoline market because there is no gasoline pipeline across the Rockies,” wrote Robert McCullough, in a report this month. “Within this island,” he added, “California is an even smaller island, since California law mandates a specific formulation for gasoline during spring and summer months.”
So California oil refineries need not artificially limit the state gasoline supply to drive up pump prices. They need not manipulate the market at the expense of California motorists. The regulators in Sacramento already have done that for them.
Fewer refineries
Indeed, over the past three decades, California’s population has nearly doubled, yet the state has not allowed any new refineries to be built. In fact, at least 10 California refineries have permanently shut down over the span, reducing the state’s overall refining capacity 20 percent.
California’s 20 remaining refineries have to produce at near maximum capacity to meet the gasoline demand of California motorists. And when even one refinery shuts down unexpectedly, it creates an immediate gasoline shortage, which leads to the run up in pump prices to which Sen. Feinstein and her colleagues attribute to market manipulation.
But there was no market manipulation when a massive fire broke out this past August at Chevron’s 245,000 barrel-a-day Richmond oil refinery.
Nor when Chevron in September shut down its KLM pipeline, which carries up to 85,000 barrels of crude each day crude oil from the Central Valley to Bay Area refineries, due to the presence of elevated organic chloride levels in the crude stream.
Nor when ExxonMobil was forced to reduce production by 65,000 barrels a day at its Torrance refinery last month after a problem at a Southern California Edison substation caused a power outage at the refinery.
Instead of siccing the Justice Department’s prosecutorial hounds on California’s refineries, Feinstein and her Senate colleagues would better serve the interests of California motorists by taking a hard look at both state and federal regulations that have done much to make the West Coast an island in North America’s gasoline market, and the Golden State an even smaller fuel island.
The only problem with California’s refineries is that there aren’t enough of them.
