Why Californians Are Paying Even More For Gas
Californians usually pay more for gasoline than do other Americans. But not this much more.
A gallon of regular now costs, on average, $3.14 in the Golden State.
The national average is $2.54, according to the AAA auto club. That
60-cent difference is twice the norm.
California’s gas prices typically hover 25 to 30 cents above the
national average, the result of high state taxes and our use of
pollution-fighting gasoline blends made by only a few refineries.
But this summer, prices in California kept climbing even as they fell in the rest of the country, and the gap grew wider.
Experts blame production cuts – some of them planned, some of them not
– at the state’s refineries. The isolated nature of California’s
gasoline market, served by a limited number of refineries, made the
situation worse. And the state’s gas taxes, which grow larger the
higher the price climbs, didn’t help.
"There was a point earlier in August when I think not one refinery was
running well," said Denton Cinquegrana, who tracks West Coast gasoline
markets for the Oil Price Information Service. "They were all having
either planned maintenance work, or there was one nagging problem or
another cutting production."
Gap Should Narrow
Like other analysts, he expects the difference between prices in
California and the rest of the country to dwindle, now that most of the
refinery problems are fixed. Production has started climbing again,
rising 4.4 percent last week, according to the California Energy
Commission. But the state’s supply of California-grade gasoline remains
5 percent below its level at this time last year.
"The high prices we’ve been seeing in California in the last days and
weeks are going to come down, and you’ll see something closer to the
national average," Cinquegrana said.
To understand why we pay more, even in the best of times, it is
important to remember that gasoline isn’t the same in every state.
In 1996, California started using its own unique fuel blends to combat
air pollution in smog-prone cities. The plan worked, but with a
serious, unintended consequence. No other state adopted California’s
fuel standards, so the state became a kind of energy island, its
economy dependent on gasoline blends found nowhere else.
At the same time, the number of refineries in California was shrinking.
In the 1980s and early 1990s, West Coast refineries were dealing with
low profit margins, and smaller ones had been closing. More shut down
rather than make the expensive upgrades to produce the new gas,
upgrades that could cost as much as $400 million per refinery.
As a result, California came to rely on a limited number of refineries,
most of them in the state. The special fuel blends also cost more to
make than did regular gas. The current estimate is 5 to 15 cents more
per gallon.
Flash forward to 2008. As the global economy staggered last fall, some
refining companies started cutting the amount of gasoline they made
nationwide, because drivers weren’t buying as much fuel.
"The data I’ve seen show that for a very long time, supply and
production were exceeding demand, and any business sooner or later will
cut production," said Joe Sparano, president of the Western States
Petroleum Association, an oil industry trade group.
The cuts continued through this summer. Then individual refineries
throughout the state started running into unexpected problems that
further limited production. In July, for example, Tesoro Corp.’s Golden
Eagle refinery in Martinez had to shut down a key piece of equipment
that took weeks to repair. Shell’s Martinez refinery reportedly
underwent unplanned repairs at roughly the same time.
‘Out Of Whack’
"The key to this was the twin outages," said Brian Milne, refined fuels
editor for the Telvent DTN business information service. "You had
refineries already cutting back their run rates. When you’re in that
situation and then you have an unexpected problem, you can see things
really get out of whack."
Consumer advocates say this summer’s big disparity between prices in
California and the rest of the nation shows the stranglehold refiners
have on the Golden State’s economy.
"We are a relative island in production of our gasoline formula, so
it’s easy to game," said Judy Dugan, research director for the Consumer
Watchdog advocacy group. "You make a little less so you can charge more
– like any product."
Sparano said the refiners had to cut production because of tumbling
gasoline sales, which started stabilizing only this summer. A parade of
politicians and bureaucrats has investigated the refining business over
the years without proving illegal price manipulation.
"The notion that if somehow they had just kept going and storing stuff
in tanks that couldn’t hold any more, we’d be better off when they had
unplanned outages – that’s not the way a business works," Sparano said.
Finally, taxes also helped push California’s gas prices far higher than
the national average. According to the American Petroleum Institute,
the oil industry’s main lobbying group, Californians pay the highest
gasoline taxes in the United States, when federal, state and local
taxes are combined. And because sales taxes are calculated as a
percentage of the overall sale price, they rise whenever the price does.
In January, Californians paid 50 cents in taxes on every gallon, according to the energy commission. Now it’s 59 cents.
The Price Of Gas
· In California: $3.14
· Nationwide: $2.54
· Prices are averages for a gallon of regular.
Source: AAA
E-mail David R. Baker at [email protected].