July 21, 2015 / 6:22 PM / 4 years ago

California drivers pay dearly for refinery problems: Kemp

LONDON (Reuters) - 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.

People fill up their tanks with gasoline at a Costco Gas Station in Carlsbad, California October 5, 2012. REUTERS/Mike Blake

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 (link.reuters.com/xyx25w).

The gap between fuel prices in California and the rest of the country hit a record $1.06, up from just 43 cents at the start of the year (link.reuters.com/baz25w).

There are plenty of conspiracy theories about why the state’s motorists are paying so much, ranging from high taxes and specialty fuel formulations to market manipulation, but the truth is more prosaic.

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).

California levies almost 61 cents on every gallon sold in the state compared with a national average of just 49 cents, according to the American Petroleum Institute, a 12 cent difference.

The state also enforces its own stricter standards for fuel quality to reduce haze and smog which leaves the market somewhat isolated from the rest of the country.

California motorists are therefore used to paying more than those in the rest of the country, but over the last decade the premium has averaged just 32 cents per gallon, less than a third of the current differential.

As recently as December 2014, the premium for fuel sold in the state was under 30 cents per gallon, according to the EIA.

Surging gasoline prices cannot be explained away simply as a result of higher gasoline taxes and stricter formulations.

Instead, the state has suffered a series of failures and maintenance problems at its refineries which have sharply reduced fuel supplies.

West Coast refineries are currently processing around 2.4 million barrels per day (bpd) of crude oil, about 150,000 bpd or 6 percent less than the 10-year average for this time of year (link.reuters.com/gaz25w).

West Coast refineries have been processing at or near the lowest volume of crude for a decade since early this year.

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 in the rest of the country are now 1.2 million bpd or almost 10 percent higher than average (link.reuters.com/daz25w).

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 a decade, according to EIA data (link.reuters.com/jaz25w).

And the market has felt particularly tight because demand in the first few months of the year grew at the fastest rate since 2005 (link.reuters.com/maz25w).

Refinery problems, strong demand, falling stocks and a market separated from the rest of the country by geography and differing fuel standards have all come together to create a localized spike in prices.

The only solution is to bring finished gasoline and blending components such as alkylate in from other parts of the United States and Asia.

Two cargoes of gasoline and blending components are on way from Asia, which should provide some temporary relief (“Asia fuel imports to bring some relief to California drivers” July 20).

More cargoes are likely to be booked to the state if prices remain high. Higher prices will also curb consumption somewhat if they are sustained for long enough.

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

Editing by David Evans

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