California moves to ease sky-high gas prices. How soon will they fall?(Read article summary)
In the wake of record California gas prices, governor orders air-quality regulators to let refiners switch to winter-blend fuel. But how quickly California gas prices fall depends on a variety of refinery and pipeline issues.
One by one, the temporary props that have kept California gasoline prices artificially high are getting knocked out. But how quickly gas prices stop rising and fall back to more normal levels remains an open question.
On Friday, ExxonMobil's 149,000-barrel-per-day refinery in Torrance, Calif., resumed normal operations after a power outage shut it down earlier in the week. On Sunday, Gov. Jerry Brown ordered that the California Air Resources Board (CARB) to immediately let oil refineries produce winter-blend gasoline. In most areas of the state, that switch isn't allowed until Nov. 1.
So the surge in California gas prices should begin to ease after eye-popping increases have angered motorists and caused some gas stations to close. On Sunday, the statewide average hit a record $4.66 per gallon, according to the AAA's Daily Fuel Gauge Report, a rise of more than 50 cents per gallon in a little over a week. California officials hope gas prices will start heading down in days rather than weeks.
"If this situation continues, it may cause unacceptable price impacts for consumers and small businesses, significant economic disruption, and serious harm to public safety and welfare," California Gov. Jerry Brown wrote in his letter Sunday ordering the immediate switch to winter-blend gasoline. "Allowing refiners to make an early transition to winter-blend gasoline could quickly increase fuel supply."
The governor's move should help, but the speed of the change depends on a number of factors.
One of the quirks of California's oil market is that there are few pipelines that can bring gasoline in from other parts of the United States, writes James D. Hamilton, an economics professor and energy expert at the University of California, San Diego, in his blog. Indeed, one of the factors that has exacerbated the current shortage is the continued shutdown of the Kettleman-Los Medanos pipeline, which transport crude oil from the Bakersfield area to refineries in northern California. It was closed after elevated levels of organic chloride was found in the oil it was carrying.
Another key issue is refinery capacity. The reopening of ExxonMobil's refinery will help ease the shortage, but the state's gasoline supplies have been tight ever since an August fire at the much larger Chevron refinery in Richmond, Calif., one of the biggest refineries in the state. Two months later, the refinery is still operating at reduced capacity.
Another unknown is how much winter-blend gasoline refineries have produced in anticipation of the switch from summer-blend gas.
If the drop in gas prices happens slowly, it may do little to assuage the anger of Californians, who are now paying the highest gas prices in the nation.