Tuesday, October 9, 2012

California's Gas Crisis

Gas at the pump rises overnight – 1 cent, 5 cents, 19 cents, 20 cents. Suddenly unleaded gas at the pump is up to $4.76, $ 4.80, $5.00 and even $5.50 in parts of Los Angeles.

How can that be?

Senator Feinstein, standing for reelection, has sought a FTC investigation. Senator Boxer is asking the Justice Department to investigate.

Of course, the politicians will jump in, but political hot air does not produce gas at the pump.

To quote Pogo “We have met the enemy and he is us.”

We are special in California. We do things our way. We don’t learn from the past. NIMBY, in the name of environmentalism, and political paralysis rule. Our state is following the path of many California cities to bankruptcy as the state’s infrastructure decays and the great higher education system is being starved for funds.

California is living on the edge.

We have high gas prices, high utility prices, high taxes, the third worse business climate, the lowest bond rating of any state, and gas a dollar higher than any other state.

Yes, we are special in California.

The electricity crisis a decade ago and today’s gas crisis are symptomatic of the state’s cascading failures.

California did not learn from the electricity blackouts a decade ago that if we increase demand, reduce supply, and lack reserve capacity, the basic law of supply and demand will result in shortages and high price increases. California narrowly escaped electrical blackouts in the recent heat waves. Once upon a time, not so long ago, utilities tried to keep a 15% reserve capacity above anticipated peak load.

Not in california for the last decade!

Four refineries have closed in California. The remaining refineries have not been allowed to increase capacity. ARCO (owned by BP), which prices its gas cheaper than the other oil companies, is pulling out of California.

The California market is isolated from the rest of the United States. No other state produces gas for California because of the special formulations required for air quality by the California Air Resources Board (CARB).

California has resisted the development of substantial offshore oil reserves.

Californians like to drive gas guzzling SUV’s and pickup trucks, which outsell the Prius, Minis, Versas, Smart Cars, and Fiat 600’s.

California not only has a gas tax and fees of 48.6 cents per gallon, the second highest in the country, but then adds a sales tax between 7.25 cents and 8.75 cents per gallon on the pump price. Thus the base price of gas in California is expensive even before shortages, external or internal, drive up the price.

A series of unfortunate events coalesced to create a temporary shortage.

Chevron’s refinery in Richmond, California shut down because of a fire, a power failure struck Exxon’s Torrance refinery for a few days, and the Kettleman-Los Medaros Pipeline in the Central Valley has been inoperative since mid-September because of organic chloride contamination.

The operating refineries were in the process of converting from summer gas to winter gas, which requires a different formulation. The winter blend normally goes on sale October 31 because it is gives off more unburnt hydrocarbons but is less polluting than in the summer.

Governor Brown has ordered CARB to permit the refineries to sell the winter blend immediately. The refineries should come back into production and prices drop.

Gas though remains on the edge in California. So do motorists.

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