WHY GAS PRICES ARE HIGH-A couple of weeks ago, the Los Angeles Business Journal reported that Californians have paid almost $3 billion extra for gasoline since February. Why? Because regulators have balked about allowing a refinery in Torrance, crippled by an explosion, to patch the damage and boost operations.
Now, as the Los Angeles Times reported Wednesday, ExxonMobil Corp. has scrapped its hope of getting that patch approved by the state’s regulators. And since the permanent repair won’t be made until perhaps this winter, it appears the state’s motorists are stuck with much higher pump prices for months more.
In the seven months since the refinery accident, Californians have paid an average of 88 cents a gallon more for gasoline than the national average, according to calculations by the Business Journal’s Howard Fine and James Rufus Koren. Californians, of course, always pay more for gasoline, but it has been only about 40 cents a gallon more in recent years.
Not all of that 48 cent extra can be blamed on the refinery, they pointed out; the state’s cap-and-trade system added an estimated 12 cents to the price of a gallon since January. But even backing out that bump and some other price-boosting things, they concluded that Californians have paid an average of 32 cents a gallon extra attributed to the shortage that resulted from the refinery accident. Multiply that by the number of gallons sold, and it totals nearly $3 billion.
So what does $3 billion look like? It comes out to about $75 for every man, woman and child in the Golden State. If you have a family of four, your household’s share would be $300 extra in costs at the pump because of the refinery’s problems.
Another way to look at it: $3 billion is enough to have bought all the homes sold in Los Angeles County in July, assuming all 5,278 homes sold at that month’s median price of $525,000. And there would have been enough money left over to buy L.A.’s largest mansion, the former Spelling Manor in Holmby Hills. Remember, that’s just the extra amount California have paid just as a result of the accident.
Another result, according to one economist Fine interviewed: Los Angeles County’s growth rate is about a half-percentage point lower than it should have been – that’s roughly 20,000 foregone jobs that otherwise would have been created.
So why are we in this situation? It started in February when an explosion ripped through the Torrance refinery’s new pollution-control equipment. As a result of the accident, the refinery was reduced to operating at about 20 percent of capacity. Since that one refinery supplies as much as one-fifth of Southern California’s gasoline and about 10 percent of the state’s, there was a gasoline shortage and prices jumped at the pump.
Other states in this situation could simply import gasoline. But California’s regulations require special blends, making imports much more difficult. California is pretty much a captive to its in-state refineries.
ExxonMobil proposed a patch. It would dust off its old pollution control equipment and use it until it could get new equipment manufactured. But the problem is that the old equipment allows more particulates to spew. And the South Coast Air Quality Management District dug in, not allowing even a temporary increase in pollution to keep supplies and prices stable, seemingly untroubled by the financial hurt their decision would impose on their state’s people.
The spokesman for the air district told us: “There must be no net increase in emissions and that must be verifiable.”
So the refinery proposed to operate at about two-thirds capacity and spend millions to reduce emissions from other sources to reduce overall pollution, perhaps with no net increase in pollution at all.
But the refinery’s plan never could get approved, for reasons that were never made clear, and this week ExxonMobil finally gave up on the patch proposal.
Things have gotten more complicated. A consumer organization alleges the refinery is stonewalling an investigation in the explosion and implies the company is even hiding an employee who could be a key witness, according to the Daily Breeze. The company reportedly said it is cooperating and the employee has been interviewed three times. Regardless, the whole matter appears to be descending into a political wrangle.
Meanwhile, Californians appear stuck with higher gasoline prices. The refinery apparently is still waiting to get the new equipment and must install it and test it before resuming full operations. The company hasn’t set a timetable on that, but reports indicate it won’t occur until perhaps February – which would be one full year after the explosion.
The Times article pointed out one possible salve for financially wounded motorists: Gasoline marketers will be able to switch to more plentiful winter blends in November, and that could ease the gasoline shortage somewhat and may help lower prices.
Until then, the state’s commuters can expect to pay up at the pump, more than drivers pay even in Hawaii and much more than motorists in neighboring states. For example, on Wednesday, according to AAA, gasoline prices were $3.03 a gallon in California but a mere $2.38 in Arizona.
(Charles Crumpley is the editor of the Los Angeles Business Journal. This piece was posted first at Fox and Hounds.)
Vol 13 Issue 78
Pub: Sep 29, 2015