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Record Exports Led To Higher California Gas Prices, Activists Say

SAN FRANCISCO CHRONICLE
http://www.sfchronicle.com/business/article/Activists-say-record-exports-led-to-higher-6319821.php

In December, one month before pump prices started soaring across California, a record amount of gasoline left West Coast refineries, to be sold elsewhere.

Exports of finished gasoline from the West Coast hit an abrupt, all-time high of 2.7 million barrels in December, according to federal government data. The export surge came as California gasoline prices slid below $3 per gallon for the first time since 2010.

The relief at the pump didn’t last. California’s gasoline prices started climbing the first week of February and rose more than $1 per gallon in just over a month.

It’s no coincidence, says Jamie Court with Consumer Watchdog. His consumer advocacy group, which found the jump in exports by scanning data from the U.S. Energy Information Administration, argues that oil companies tried to set the stage for a price spike in California by shipping as much fuel as possible out of state.

“It’s like drying the prairie in advance of a fire,” said Court, the group’s president.

A gallon of regular now costs, on average, $3.58 in California, 83 cents more than the national average.

There’s nothing illegal about exporting gasoline or diesel, as Court readily admits. But his organization wants California’s government to take a more active role in regulating the state’s oil industry, requiring companies to keep a minimum amount of fuel on hand in case refinery accidents or production glitches suddenly cut supplies.

This year’s price spike, after all, followed the closure of a Tesoro refinery in Martinez during a labor dispute and an explosion at an Exxon Mobil refinery in Los Angeles County. The surge in exports in December, Court said, meant supplies were already low before those problems arose. He called it “emptying the well — and then breaking the pump.”

Consumer Watchdog frequently spars with the oil industry, and a spokesman for the Western States Petroleum Association on Wednesday dismissed Court’s arguments.

“This group has a long history of presenting data that they don’t understand or of misusing it for their advocacy purposes,” said association spokesman Tupper Hull.

Gordon Schremp, senior fuels specialist with the California Energy Commission, said it’s not unusual for the state’s refiners to export finished fuel when prices are low and supplies are high. Like many businesses, if refiners can fetch a better price selling their products elsewhere, they will. And while fuel prices worldwide were falling at the end of 2014, pulled lower by the collapse of the oil market, California entered December with more gasoline than its drivers needed.

“Clearly, prices were down everywhere,” Schremp said. “But temporarily, the gasoline market in CA was oversupplied.”

Analysts often refer to California’s gasoline market as an island, cut off from the rest of the country. The state uses its own pollution-fighting fuel blends, considered the country’s cleanest. While those blends fight smog, they are typically made by just 14 refineries, all of them located within the state. If production problems strike several refineries at once, prices soar. California’s refineries also make fuel for neighboring states.

Even when all of California’s refineries are operating smoothly, the state usually has the highest gasoline prices in the continental United States. In part, that’s the result of high taxes, which add about 66 cents per gallon. Starting in January, California’s “cap-and-trade” system for reining in greenhouse gas emissions added another 10 cents per gallon, according to estimates.

The federal government’s gasoline export statistics for the West Coast do not break out individual states. California is lumped in with Alaska, Hawaii, Arizona, Nevada, Oregon and Washington. But California has by far the West Coast’s largest concentration of refineries, processing almost twice as much oil per day as the rest of the region combined.

Federal data show that gasoline exports from the region jumped from 1.2 million barrels in October of 2014 to 1.8 million in November and 2.7 million in December. The surge then tapered off, falling to 1.1 million barrels in March, the most recent month for which data are available. Each barrel contains 42 gallons of fuel.

The California Energy Commission tracks fuel production and reserves in the state week by week. In December, refiners held in storage far larger amounts of non-California gasoline — fuel meant for other markets — than they had a year earlier. By contrast, supplies of California-grade gasoline were slightly smaller than they had been in December of 2013.

Hull noted that December’s record high exports amounted to about 3.5 million gallons of gasoline per day. While that may sound like a lot, California refineries produce about 44 million gallons of gas per day, he said.

“It would not take much of an increase in one of those refineries to result in an increase in exports,” Hull said.

Court considers it suspicious that gasoline exports spiked just before the turn of the year.

Starting in January, California’s cap-and-trade system — which initially covered greenhouse gas emissions from power plants, refineries and factories — expanded to cover transportation fuels sold in the state. The oil industry and its political allies spent much of 2014 arguing that the move could send California’s gasoline prices soaring as much as 79 cents per gallon.

Both Consumer Watchdog and the policy arm of Consumer Reports warned that oil companies might try to manufacture a price increase to sabotage cap and trade. Oil industry representatives called the charge ridiculous. But California officials took it seriously enough that they set up a committee to monitor the gasoline market for signs of manipulation, with members including prominent economists and an anti-trust lawyer from the Attorney General’s office. The committee has not met since February, Court said.

While California’s prices have indeed soared in 2015, independent analysts pin the blame on refinery problems and a slight recovery in the worldwide oil market, rather than cap and trade.

“The fact that they were exporting so much product in December suggests that it was part of their strategy to get the market ready for a gas-price spike when the cap-and-trade program took effect,” Court said.

David R. Baker is a San Francisco Chronicle staff writer. E-mail: dbaker@sfchronicle.com Twitter: @DavidBakerSF