California Drivers Pay Dearly For Refinery Problems -- John Kemp, July 21, 2015

 Addendum

Later, 2:35 p.m. Central time: Pet peeve -- California drivers who think there is an oil industry conspiracy for the prices of gasoline in California. Direct taxation, California gets 61 cents from each gallon; XOM gets around 3 cents from each gallon (reminds me of Henny Penny and her bread baking day). Other costs are all state government related; unfettered, XOM could provide gasoline for Californians at a lower price than what most others pay across the United States (volume pricing).

Later, 12:29 p.m. Central time: California drivers account for more gasoline / more miles driven than any other state. In the notes below, it was noted that gasoline demand the first few months of 2015 was the highest since 2005. That led me to opine that this August the US will hit 10 million bbls of gasoline/day demand -- first time ever in the history of the US that gasoline demand hits the 10-million milestone. Part of that demand was driven by relatively inexpensive gasoline. However, with the high cost of gasoline in California right now (and no end in sight for the duration of the summer -- in fact, it could get worse), California demand may go down. If California demand goes down from here to the end of August, we may not hit the 10-million bbls of gasoline/day. Having said that, I still think we will hit the number (10 million); summer plans were made months ago, and folks have become accustomed to driving again. It will take several months of high prices (and we may not be there yet) for folks to change their driving habits (again) in California (the change will be temporary, of course -- just until prices come down again).

See also: OilPrice tells us why Californians pay more for their gasoline -- 

In large part because an Exxon Mobil Corp. refinery in Torrance has been out of commission since an explosion there in February, and the state’s environmental regulations are hampering the company’s efforts to quickly get it back to full production.

The refinery is now operating at under 20 percent of its potential, mostly because the explosion damaged its two pollution control units, according to Mohsen Nazemi, the deputy executive officer for engineering and compliance of California’s Sourth Coast Air Quality Management District.

ExxonMobil has sought permission to use a previous model of the unit until the newer version can be installed, but was denied because the older unit emits between two and six times more greenhouse gases than the newer model, which would violate state regulations. To use the older equipment, he said, the company would need to show the state that it can contain offset these increased emissions.

In the meantime, ExxonMobil is working to repair the newer pollution control units by replacing about 1,300 plates that trap the emissions, which are made of a fine dust. “That’s not going to happen next week or next month,” Nazemi told the Los Angeles Times. “You’re probably looking at the end of the year.”

Original Post

 
John Kemp, a perfect storm -- these factors coming together to create a localized spike in prices

• refinery problems
• strong demand
• falling stocks
• a market separated from the rest of the country 

The only solution: bring finished gasoline and blending components such as alkylate in from other parts of the US and Asia

Did Saudi Arabia see this coming? Is Saudi Arabia able to provide the gasoline California needs? I don't know. But Saudi Arabia is transitioning to one of the world's largest refiners after a history of importing refined products for domestic consumption.

Reuters is reporting:

California motorists are paying $1 per gallon more for gasoline than drivers in the rest of the country as problems at state refineries leave the state fuel market unusually tight.
The average price of gasoline sold in the state was $3.95 per gallon on Monday, compared with a nationwide average of $2.89, according to the U.S. Energy Information Administration.

In fact, we're paying about $2.50/gallon here in Texas and about $4.60/gallon in California. The $1-spread suggested by John Kemp is a very, very optimistic spread. Driving cross-country from Los Angeles to Dallas last week suggests to me the spread is closer to $2.

The reasons are clear-cut.

1. California is an "island" when it comes to gasoline. Only the California refineries supply the state government-mandated formulation of gasoline. Refineries in neighboring states do not provide the required formulation that California requires. Some overseas refineries do.

2. To meet demand nationwide, and I assume in California, the refineries pretty much have to run at 96% capacity. The XOM refinery in Torrance (south Los Angeles) lost two pollution control panels which has cut XOM refinery to about 20% capacity. That's a huge, huge cut. XOM has asked for relief from the state to allow it to produce gasoline without the pollution control panels, but the state has said no.

3. XOM also lost a supply of crude oil off-shore due to a pipeline rupture. XOM could have used trucks to bring this crude oil to their refineries, but again, the state said no.

4. The state gasoline tax is the second highest in the nation. The sales tax is clearly seen on every pump.

5. The state has a hidden "carbon cap-and-trade" fee on every gallon of gasoline; that fee is "hidden," and the actual cost is unknown. The cost is estimated to add anywhere from 20 cents to $1.40/gallon. The EPA has made it very clear that the "carbon cap-and-trade" fee will do absolutely nothing to affect global temperature. Absolutely nothing, but the fee probably adds about $1.00/gallon. The fact that no one can provide a cost suggests it's much higher than people think.

6. According to John Kemp: pump prices include taxes and fees imposed by federal, state and local governments, and California levies the fourth-highest charges in the union (only Pennsylvania, New York and Hawaii tax fuel sales more heavily):

• 61 cents state tax vs national average of 49 cents (inconsequential with $5.00 oil
• environmental fees, hidden, as noted above

7. Over the last decade, the price of premium gasoline has averaged just 32 cents per gallon, less than a third of the current differential. As recently as December, 2014, the spread was less than 30 cents per gallon.

8. West Coast refineries are currently processing 2.4 million bopd, about 6% less than the 10-year average for this time of year (150,000 bopd); West Coast refineries have been processing at or near the lowest volume of crude for a decade since early this year.  

• the state has been drawing down its stocks of refined gasoline much faster than usual as refineries fail to keep up with demand 
• gasoline stockpiles on the West Coast stand at the lowest level for this time of year in more than decade
• the California market is particularly tight because demand in the first few months of the year grew at the fastest rate since 2005

9. In contrast, refineries in the rest of the country have been processing record amounts since January to take advantage of very high crack spreads. Refinery runs are now 1.2 million bopd (or almost 10% higher than average).

10. Two cargoes of gasoline and blending components are on way from Asia, which should provide some temporary relief.

11. But California's gasoline prices look set to remain at an unusually high premium until the state's refineries are fully back on line.