Gasoline prices in California may be on the rise

from Alejandro LazoCalMatters

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Eleven weeks after the Iran war and global energy shock, California drivers are paying the highest gas prices in the nation, averaging $6.15 a gallon this week.

Pain at the pump collides with California’s ambitious push to transition away from fossil fuels, as refinery closings, supply disruptions and a deepening debate over dependence on oil and gas imports raise new questions about whether the state can keep gasoline affordable during the transition.

Here are five things to know about how Sacramento is responding to the crisis and what it could mean for prices in the coming months.

California could see six weeks – then prices could go up.

California can confidently forecast gasoline and crude oil supplies until about mid-June, and supplies appear stable through that window, Siva Gunda, vice chairman of the California Energy Commission, said. said at an assembly oversight hearing last week.

After that, oil and gas security will cost significantly more, he said.

California may be ahead of the rest of the world for gasoline and crude oil, pulling supplies from Asia and other markets. But this bidding war has a price, and consumers will pay it at the pump, Gunda told the commission.

To protect against that uncertainty, Gunda said California is negotiating long-term supply deals with Asian refiners that could lock in another three to six months of certainty.

“Liquidity in the short term is fine,” said Gunda. “As we move forward, it’s really about making sure more ships come in, more naval vessels come in.”

As refineries close, imports fill the gap.

The Iran War exposed California’s growing dependence on imports for both crude oil and gasoline. The country must import more supplies as domestic refineries close.

Neil Mahoney, a Stanford economist, told the committee that imports can be beneficial. They add competition and lower prices because newer foreign refineries often produce gasoline cheaper than California refineries.

Other experts agree. UC Berkeley energy economist Severin Borenstein, also at the hearing, said California’s resilience now depends on building port, pipeline and storage capacity to handle imports, not bringing new refineries online.

As the war dragged on, California refineries shifted crude oil supplies from the Persian Gulf to Latin America, Alaska and CanadaGunda said at the hearing last week. The country met about 20% of the demand for refined products through imports in the year before the start of the war.

“Basically we have to recognize that we will have fewer refineries and the solution is imports,” Borenstein said.

The oil industry says imports are the problem, not the answer.

But the oil industry is pushing back, saying relying on increased imports is the wrong strategy. California’s fuel system has been “weakened by design” by state policies that have pushed refineries out of state, said Jody Mueller, president and CEO of the Western States Petroleum Association, a characterization that energy economists dispute.

Because California requires such cars combustion of a specialized fuel mixtureshipments can be harder to deliver and take longer to arrive, exposing users to delays and instability whenever something goes wrong globally.

“Continuing to shift to more and more imports will put this country at greater and greater risk,” Mueller said last week. “If you think we’re in a precarious position right now, we’re going to continue to see more and more volatility.”

And the oil industry says the playing field is tilted. California refineries face some of the strictest rules in the world, the industry says, while imported gasoline is produced to much weaker standards before being shipped halfway around the world. California requires importers to certify their fuels meet its standards, but the industry says foreign producers operate under less stringent environmental rules.

$6.50 or $7-plus? Experts cannot agree.

In the end, what you feel most acutely is the price you pay at the pump. And even the experts aren’t sure where things will land.

Asked what consumers should expect if the conflict drags on, Gunda said California prices will likely settle “below seven, more like $6.50.” He explained that demand begins to decline after gas passes around $5.50 a gallon, and California is already seeing drivers switch from higher-priced gas stations to cheaper ones.

Borenstein is less optimistic. If the Strait of Hormuz, the narrow waterway that carried more than 20 million barrels of oil a day before the war began, remains closed for another 60 days, the price of crude could rise another $40 to $80 a barrel, he said. Each increase of $40 becomes about $1 a gallon at the pump. He called that scenario plausible and warned that California policy could do little about it.

“Unfortunately, I think it would be a crisis,” Borenstein said. “I know we’re all hoping that doesn’t happen and that the oil flow resumes, but the reality is that we’re on borrowed time as we draw down supplies.”

Will high gas prices boost EV sales?

California has spent years trying to push drivers out of gas cars. Now, extremely high gas prices may pique the interest of some consumers.

Sales of electric vehicles in California fell last year after the Trump administration canceled a key federal tax incentive, undermining California’s plan to replace staunchly gas-powered cars with electric ones to meet its climate goals.

Governor Gavin Newsom is now pushing to revive some of those sales through a new government incentive in the process of negotiating the budget. It’s too soon to know if the pain at the pump translates into a broad recovery in EV demand. But some users are already switching.

When gas prices recently climbed above $6 a gallon in Redding, Victor Ireland said his daughter decided there was “no way” she wanted a gas car after seeing the family spend more than $140 for a round trip to Sacramento in their minivan.

The search was not easy. Inventories of electric cars fell across the country after expiring federal tax credits briefly boosted demand. The family scoured dealerships in the West, from Washington to Kansas, after his daughter settled on a particular model: a Fiat 500e Giorgio Armani Collector’s Edition. They found a dealer in Utah who could ship the vehicle to California.

Ireland said skyrocketing gas prices only solidified his family’s decision. “You just load it up and go,” he said.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.