| Photo courtesy of R. Nial Bradshaw/Flickr (CC BY 2.0)
Governor Gavin Newsom announced a plan Friday that would require oil refineries to maintain minimum inventories to prevent price spikes that cost Californians hundreds of millions of dollars each year.
The governor’s proposal – the first of its kind in the U.S. – would authorize the California Energy Commission (CEC) to require oil refineries to maintain a minimum fuel reserve to guard against supply shortages that drive up pump prices.
“Price spikes at the pump mean profit spikes for the oil industry,” Newsom said in a statement. “Refineries should be required to plan ahead and replenish their inventories to keep prices stable, rather than playing games to make even more profit. If refiners were forced to act responsibly and maintain a gas reserve, Californians could save money at the pump every year.”
According to Newsom’s office, the proposed mandate would:
- “Require California oil refineries to submit to the CEC replenishment plans and agreements sufficient to offset production losses due to refinery maintenance.
- “Authorize the CEC to require petroleum refineries to maintain adequate fuel stocks to stabilize fuel supplies.
- “Impose penalties on refineries that fail to comply with these requirements.”
If the fuel reserve requirement had been in place last year, residents and visitors to the state could have saved more than $650 million in gasoline costs caused by price spikes at refineries, Newsom’s office reported.
Catherine Reheis-Boyd, President and CEO of the Western States Petroleum Associationsaid, “The Newsom administration’s announcement of minimum service levels is nothing more than a political attack on consumers and our industry. Their claims about scheduled maintenance during the busiest driving season are false, intentionally misleading and show a complete lack of understanding of our industry.
“Imposing new operating requirements on energy producers based on such falsehoods is regulatory malpractice and ignores the logistical challenges and costs associated with such a plan,” Reheis-Boyd continued. “If this administration is willing to have a serious discussion about the facts and the policies this state has implemented that impact consumer costs, we will be there.”
“However, cooperation is not a value of this administration. Once again, in the final weeks of the legislative session, they have proposed sweeping and costly new laws that put lawmakers, stakeholders and industry in an impossible position to make effective policy,” she said.
According to the state Energy Commission, California refineries ran out of gasoline supplies for 63 days in 2023, causing prices to rise at the pump. Officials said the proposed fuel reserve “would help ensure the industry behaves responsibly and plans ahead to protect consumers from price increases.”
Prices at the pump are significantly lower than at the same time last year and in 2022.
According to AAA and the Oil Price Information Service, the average price of a gallon of regular gasoline in Los Angeles County has fallen $1.92 since Friday after rising to a record $6.49 on Oct. 5, 2022. The price is 68.1 cents lower than a year ago.
This summer, California consumers spent an estimated $728 million less on gasoline than during the same period last year, the governor’s office reported. The proposed fuel reserve is intended to further protect consumers at the pump and help stabilize the market in the long term.
“The data is clear: oil refineries have made profits by scheduling maintenance that reduces supply during our busy seasons,” Tai Milder, director of the Energy Commission’s Division of Petroleum Markets Supervision, said in a statement. “The governor’s proposal gives us new tools to require refineries to schedule responsibly and prevent price gouging during maintenance.”
The proposed fuel reserve requirement is the latest step by the state government to stabilize the gasoline retail market.
Following the price spikes in 2022, Newsom called a special session of Parliament and signed a reform package that he said was aimed at “holding big oil companies accountable.”
The Energy Regulatory Commission, the state’s new oil industry regulator, found that higher gasoline prices were caused by industry practices, including questionable market transactions, maintaining refineries without adequate preparation for the resulting fuel shortages and other price-gouging actions. The department recommended the minimum inventory requirement in a letter to Newsom earlier this year.
The regulator also said gasoline prices rose sharply in 2023 because refineries went offline without adequate planning to replenish fuel inventories. That “led to a surge in refining margins as spot and retail prices soared – suggesting that refining margins accounted for the largest share of the price spikes between July and September 2023,” state officials said.
Other countries have also imposed obligations on refineries to maintain fuel stocks.
Australia’s Fuel Security Act provides for a minimum stock requirement and a payment for fuel security services. The minimum stock requirement, introduced this year, requires large fuel refineries to hold 24 days’ worth of petrol and 20 days’ worth of diesel.
The Japanese Oil Reserve Law requires the government and the private sector to maintain reserves of crude oil and other petroleum products.
The European Union has adopted an Oil Stocks Directive requiring EU member states to maintain emergency stocks of crude oil and petroleum products equivalent to at least 90 days of net imports or 61 days of consumption (whichever is higher).
Updated on 15.08.2024, 14:15
