Refinery outages contributed to California’s gas price hike. Why do we know so little about them? – Chronicle of San Francisco | CarTailz

As gasoline prices soared to $8 a gallon in parts of California last month, experts said a key reason was that some of the state’s 14 refineries were down for maintenance or part-time. Refined oil supply fell as demand remained high — to a point where average gas prices in California were at least $2.50 more than the national average.

But it’s virtually impossible for the public to learn key details about the outages and refinery operations — creating a barrier to understanding solutions.

Even regulators say they need more information.

In an angry letter to refinery executives on Sept. 30, California Energy Commission Chairman David Hochschild wrote: “This level of divergence from national prices has never occurred before, regardless of planned or unplanned refinery maintenance, and it no explanation was given. The oil industry owes Californians an answer.”

In their responses to Hochschild, oil refiners said they could not publicly share any information about operations, maintenance or stock levels due to antitrust concerns.

Unlike other states, California relies almost entirely on state refiners to meet gasoline demand. This is because the petrol sold in the country has to meet special requirements in order to reduce environmental pollution.

More than 90% of the gasoline consumed in California is refined by five companies: Marathon, Chevron, Phillips 66, Valero and PBF Energy.

The Energy Commission, limited by what it can share with the public, declined to confirm how many refineries were out during the fall’s price hike. But the American Automobile Association told The Chronicle in early October that at least six of the state’s 14 refineries were shut down or partially shut down for maintenance.

Also, due to restrictions on public information, there’s no official word on how many were planned and unplanned outages. However, an Energy Commission spokesman said only one refinery was down and maintenance is expected to be completed next week.

Refineries need maintenance, and often this is scheduled for the fall after the high mileage of the summer. Refinery maintenance in a tight market has previously been correlated with prices at the pump: When five refineries underwent unplanned maintenance in 2019, the price hike was 34 cents, Hochschild said in an Oct. 5 statement. An explosion at a Los Angeles County refinery in 2015 was also associated with higher prices, according to Hochschild.

According to CEC data, in just one month this year the amount drivers paid for refining costs and profits more than tripled, from $0.64 a gallon in August to $2.18 a gallon in September. Gas prices rose to $5.62 a gallon from $5.06 a gallon, the relatively modest increase only because taxes, fees and crude oil costs remained flat or fell.

Eventually, prices soared even higher — averaging more than $6.40 at the pump — and Hochschild said the refinery’s maintenance, particularly the planned maintenance, alone couldn’t explain that.

One possible explanation, Borenstein says, is that when there is a shortage due to unplanned maintenance, nationwide oil refineries have an incentive to produce less than they are capable of, in order to further increase gas prices and their profit margins.

“There’s nothing illegal about that: as long as[refiners]don’t talk to each other, they can individually decide how much output to produce,” Borenstein said.

So “there’s a very real question: Is this a real shortage or an engineered shortage?” Borenstein said.

Kevin Slagle, spokesman for the Western States Petroleum Association, an industry group, dismissed the notion that producers might try to push up prices by aggravating shortages, which he called speculation unrelated “to facts or real factors.” matches to which the market is exposed. ”

He said: “Every time the cost goes a little bit higher, there are the same calls and the same claims about gouging and things not happening.” A lot of research has been done, Slagle said, and “in the end they always find out that it’s not about irresponsible activity by the industry, it’s really about market pressure. In this case, we see inflationary pressures and a lot of market volatility.”

Oil refiners say price jumps are being caused by limited supply and high demand, and are being made worse by their limited ability to import refined oil that meets California specifications. The state has already lost some refining capacity, and Slagle warned that shortages could worsen as the state ramps up its efforts to reduce gasoline use, leading to more refineries being permanently closed. “If that little maintenance can cause a problem, imagine if we have two, three or four refineries lost in the coming years,” he said.

When a refinery in California suffers an outage, there is very little public information about which refinery is involved, whether the outage is planned or unplanned, and how much capacity is affected. What is publicly available is often just tidbits in the news. Or it’s collected by private companies like Wood Mackenzie through methods like attaching infrared cameras to refineries to measure their productivity, and then sold to various customers, Wood Mackenzie analyst Lee Williams said.

Refiners can report their failures to the California Energy Commission, but the CEC doesn’t release the refiners’ names because “it is confidential business information that refiners voluntarily share with us,” said Lindsay Buckley, spokeswoman for the Energy Commission.

The lack of public information about refineries contrasts with the abundance of information about outages related to another energy market – the state power grid. The California Independent System Operator publishes a daily report of which plants are operating below capacity, whether the outage was planned or unplanned, and how much capacity was lost in each case. The network operator was required by the California Public Utilities Commission in 2001 to make this list publicly available.

According to Mark Agerton, an economics professor at UC Davis, such information is critical in the electricity market, which requires a lot of coordination between facilities as electricity supply must always match demand. Additionally, UC Davis economics professor James Bushnell said the grid operator has a lot of leverage to request data because the only way for facilities to deliver power to customers is through the lines they monitor.

The Energy Commission does not have the same influence over refiners and, for example, does not publish data on which refineries have outages and for how long, because it “fears that such data (by refiners) will no longer be collected voluntarily if it has been made public or used in legal proceedings”. said Bushnell.

Slagle of the Petroleum Association said, “If one refinery knew another was going under and they either acted similarly or filled the gap, that would present the market with an opportunity to not be a pure market.”

The Valero Refinery in Bencia is one of 14 oil refineries in the state.

Michael Macor, Contributor / The Chronicle

When asked about refiners who might be buying this information on the open market, Slagle said, “If they’ve heard information like this on the street, they’re likely to get it there, but there’s no clearing house for that kind of information.”

Some politicians are skeptical: Oil refiners refusing to provide details over antitrust concerns “sound like a convenient excuse,” said US Representative Mike Levin, whose district includes parts of Orange and San Diego counties. He wants the Federal Trade Commission to investigate the recent price spike in California.

“The industry response has been completely unclear as to why prices are rising so fast, the way these refiners are making their decisions, when they choose maintenance, when they choose unplanned outages,” Levin said.

Refiners are required to report some information to the CEC: Under the Petroleum Industry Information Reporting Act of 1980, refiners are required to report to the CEC their net production, inventories, and the price and volume of refined oil shipped to each region of California. according to the reporting instructions of the CEC. All of this data remains confidential.

But the CEC’s Hochschild told refinery executives in his letter that he was still in the dark as to the cause of the gas price hikes and the reasons for what he described as lower inventories amid long-planned maintenance work.

Another requirement for information is emerging: Under SB 1322, signed by Governor Gavin Newsom in September and authored by State Senator Ben Allen, D-Santa Monica, refiners must report to the CEC each month the cost of the crude oil they purchase, the wholesale price of the gasoline they sell and their profits per gallon.

Both Borenstein and Allen said the next step in understanding prices at the pump is to take a closer look at the contracts between refineries and retail gas stations.

“Those of us in academia or in regulatory or oversight work need more information to make smarter decisions to ensure we’re doing the right thing to consumers,” Allen said.

Claire Hao is a contributor to the San Francisco Chronicle. Email: claire.hao@sfchronicle.com, Twitter: clairehao_

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