When higher energy costs impact everyday lives, it can be a painful reminder that energy policies have real-world consequences.
California is facing just such a moment. Motorists in the Golden State recently paid record high prices for gasoline – prices that were more than 80 cents higher than the national average.
What’s behind this costly surge for consumers?
Some politicians want to blame the energy industry. But what happened last week was a series of unrelated incidents that, when combined with California’s policies that reduce the ability of the market to respond, aggravated an already difficult situation.
It’s important to keep in mind that California’s energy policies have effectively turned the state into a “fuel island” – disconnected from the rest of the U.S. market. California’s state-specific fuel standards and isolated logistics mean that gasoline and diesel can’t be easily brought in from other states when there is a supply shortfall. And a host of only-in-California regulations have raised costs, making it more difficult for refiners to invest in new technologies, and have even forced several refiners to shutter their facilities.
Obviously, it’s a situation that leaves California motorists extremely vulnerable to supply disruptions. The market simply can’t respond adequately within these constraints.
It’s the basic law of supply and demand. When supply goes down and/or demand goes up, there’s usually a corresponding increase in prices that reflects how much more everyone across the supply chain is willing to pay to ensure they have access to a product that has become more scarce.
A corresponding drop in price happens when the market receives signals that a product is plentiful, which is what we are currently seeing as a result of the increase in natural gas production in the United States.
One of several causes in last week’s supply disruption involved ExxonMobil, but we didn’t have the power to do anything about it – literally.
An incident at a Southern California Edison substation cut the power that the utility supplies to our refinery in Torrance. To ensure safety, we were forced to suspend refinery operations, which meant suspending production of gasoline and diesel that supplies some of the California market. It compounded a problem already created by a disruption at a Chevron refinery in the Bay area, and by other unrelated problems. The markets responded to the drop in supply by pushing prices upward.
A Wall Street Journal editorial on Monday described the mix of policy and regulatory choices California has made that have led to higher prices. These choices range from state-specific air-quality requirements to infrastructure impediments and some of the nation’s highest state-imposed gasoline taxes. The Journal is right to declare that “this crisis is self-inflicted.”
Not surprisingly, gasoline price spikes have led a number of California politicians to call for inquiries into alleged market manipulations by energy industry participants.
We agree California’s energy markets are being distorted – but what deserves investigation and public debate are the policies that have put California motorists in such a precarious position.
Of course, California is entitled to adopt the energy and environmental policies it deems best. But recent events are a reminder that government policy can have unintended effects on energy markets. Policies must be sound and market-oriented or the inevitable result will be that consumers suffer the consequences.
California has historically had a love affair with the automobile. The shame is that the entire state must suffer for the driving habits of its largest cities. The energy problems will not be solved, or at least reduced, until those habits are dealt with. This problem is similar to other policies that have been adopted by California politicians, and that is the root of the problem.
Just wait until the Low Carbon Fuels Standard is implemented. If California is its own island today; under a LCFS, it will soon be its own planet.
You failed to follow up on this. The latest data show that supplies were only limited because of gross market manipulation, not because gasoline was actually in short supply. And, your weeping about regulations “making it more difficult for refiners to invest in new technologies” is completely glossed over.
You don’t want to upgrade your refineries because it might impact XOM’s profit margin, not because the regulations make it impossible to be a good steward to the people of California.
As for the power outage in Torrance, SoCal Edison completely disagrees with your take: http://abclocal.go.com/kabc/story?section=news/local/los_angeles&id=8845849
Thank goodness there is a state like California that isn’t afraid to fight back against XOM and other oil companies.
California voters need to rein in the California Air Resources Board… start with an initiative for voter approval which requires the CARB to allow the use of gasoline and diesel fuel which is available in all adjoining states, and abolish the mandated summer and winter formulas which cost any more than fuel in adjoining states, or which is not available in adjoining states. Second, penalize the oil companies for closing refineries to retool for summer and winter formulas if they do not have sufficient reserves to last at least whatever length of time it will take to retool the refineries PLUS at least four weeks beyond the projected retooling time… Third, abolish the monopoly that one company (Unocal?) has on the summer and winter formulas and require that the company share the formula at a cost of no more than one cent per gallon; I believe Unocal is getting 20-25 cents per gallon for their monopoly on the state mandated formula.
Really with the worst air pollution in the country you want to “rein them in”.
http://www.turnto23.com/news/local-news/american-lung-association-releases-annual-report-about-air-pollution
“California’s pollution problems are primarily caused by emissions from transportation sources including cars, diesel trucks and buses, locomotives, ships, agricultural and construction equipment.”
Give me a freaking break, Exxon. This is such garbage. You’re too cheap to upgrade your equipment and want to make the liberal state of California suffer to prove a political point and flex your muscles. All “supply” shortages in the world for fuel are created by YOU, and the rest of the cartel, that artificially inflate prices by decreasing production and closing refineries. You rob our globe of natural resources and pollute our land in the process, and rob our pocketbooks of cash. You make record profits year after year, recession or not, while the rest of us suffer and can barely afford to fill our tanks. Turn some more spigots on, you greedy profiteers! And quit crying because some state is finally holding you accountable, soon the rest of us will too.
Did you learn this point of view in High school. I only ask because you sound like all the other misinformed children in this state.
I like it how you want more from Exxon, but don’t want to pay for it.
Did you know we live in a global economy. The price of oil is not in the hands of a few executives at a BIG BAD oil company.
Just to review. According to you Big Oil BAD! Please pump more now!
Go online or werevever you can and look up Gas taxes in California and tell me how much of the price of your gas is TAXES!
Then you will finally see who is stealing from you.
Also. Try running a modern economy with out it! See you in the STONE AGE!
You cite the Oil companies for the high price of fuel. While you guys are paying almost $5 a gallon for gas, us here in Georgia and Florida are paying more around 3.15 a gallon for gas. You should be going after the idiots you have running your state for pricing gas out of the reach of the general public
I gotta say. The left coast is getting what it asked for.
Between the ridiculous and unnecessary mandates on fuel to the pencilnecks that whine about the power lines interrupting their view of the ocean, it’s obvious that Californians just don’t have the grit to live any better than the less leftist rest of us.
If California is so much better than the rest of us, tell me why, in Dallas, when I extend my middle finger from my sunroof I can insult at least 5 Californians at once? Stay there. You deserve your state, and your state of affairs.
Exxon has been doing a great job of making constant and continuous improvements. I hope you keep pushing for CNG vehicles, or synthetic gasoline. I wish Exxon would pull out completely from the California market. They don’t deserve the additional choices you provide. Let California fail with useless Volts and unsafe priuses.
Full disclaimer: I don’t work for Exxon and I don’t like Californians.
In the land of fruits and nuts the crazy man is KING!
California in it’s never ending drive to be AWESOME and BETTER THAN,has stepped on it’s ding a ling again.
The winter/summer fuel is a scam from day one.
The idea that if we just squeez the drivers just a little bit harder until they just give up the freedom of driving your own car, we will somehow be a better place is NUTSZ. It is killing more people by forceing them into smaller more dangerous cars, and forcing us into smaller and less “multi purpose lanes.
As we sit parked in the lanes we watch people drive by us in the HOV/Troll lanes. Nothing like paying for something you will never be allowed to use.
This whole “Look at us, were California and we can get or residents to jump through all these hoops just to make US look like we care”
It’s time for these idiots to just go away! Were tired of your lies, holier than thou mind set. Replace it with people elected by US! Not some junior putz who “KNOWS” better than the dumb residents.
I grew up in Los Angeles in the 80′s and I remember the brownish yellow haze that hung over the San Fernando Valley. I also remember smog alert days in high school when we weren’t allowed to have PE outside. Most of the time we were unable to see the Angeles Crest mountains at the North end of “The Valley” and I can to this day recall the disgusting stench. I am a “valley girl” still to this day and twenty some odd years later I can see those mountains every single day of the year. I would gladly pay a little extra than the rest of the nation so that that stinky haze never returns. Everyone should know that in twenty years or so the regulations we have in place here in California have made a difference. There are those of us who actually witnessed the change over time as proof that it IS possible to make positive environmental changes that are good for people and places. Those of us who were here back then are charged with sharing with the transplants to our great city what it used to be like… read more »
…here, what it is like now and how it should remain. The oil companies should quit whining. They make billions of dollars a year, billions. Yet, it seems that will never be enough.
Your real problem should be with God. The smog and air pollution in California is solely due to where these cities are built. That is why cities in other states that do not have the same geography as California do not have the same problems. You are welcome to move and people that do not live there should stop complaining. Just stop asking for federal money to fix California problems. Same goes for swamp cities like Boston, New Orleans and New York.
I realize that prices are high, but growing up in Los Angeles during the 80′s the air was so bad that my lungs would sometimes hurt. I’d pay $10 a gallon to prevent my children from being exposed to that!
you can pay that if you want, i refuse too along with a lot of people, there is no reason why gas should be that high
California has historically had a love affair with the automobile. The shame is that the entire state must suffer for the driving habits of its largest cities. The energy problems will not be solved, or at least reduced, until those habits are dealt with. This problem is similar to other policies that have been adopted by California politicians, and that is the root of the problem.
Just wait until the Low Carbon Fuels Standard is implemented. If California is its own island today; under a LCFS, it will soon be its own planet.
You failed to follow up on this. The latest data show that supplies were only limited because of gross market manipulation, not because gasoline was actually in short supply. And, your weeping about regulations “making it more difficult for refiners to invest in new technologies” is completely glossed over.
You don’t want to upgrade your refineries because it might impact XOM’s profit margin, not because the regulations make it impossible to be a good steward to the people of California.
As for the power outage in Torrance, SoCal Edison completely disagrees with your take: http://abclocal.go.com/kabc/story?section=news/local/los_angeles&id=8845849
Thank goodness there is a state like California that isn’t afraid to fight back against XOM and other oil companies.