California’s fuel market, where gasoline prices have been consistently higher than the national U.S. average, has seen multiplying challenges in recent years, which resulted in new state legislation and an announcement of a refinery closure in October, the Energy Information Administration (EIA) said in an analysis on Monday.
As of December 9, the average U.S. retail price for a gallon of regular gasoline was $3.018, according to AAA data. Retail gasoline prices in California, however, averaged $4.365 per gallon. California retail gasoline prices are consistently among the highest in the country and regularly exceed the U.S. average price by more than $1 per gallon.
“While multiple factors contribute to higher retail gasoline prices in California, including higher crude oil costs and higher refining costs on the West Coast, the region has also historically maintained lower inventory levels relative to the rest of the country,” the EIA said today.
To address and possibly prevent the wild swings in California’s gasoline prices, Governor Gavin Newsom signed in October legislation that allows the state to require oil refiners to maintain a minimum inventory of fuel to avoid supply shortages. The ABX2-1 law also authorizes the California Energy Commission (CEC) to adjust minimum storage volumes based on regional and seasonal market conditions, refinery size, and storage capacity, and also empowers the CEC to consider the use of a tradable mechanism for compliance with the minimum inventory law, which the state has used in the past for programs such as its Low Carbon Fuel Standard (LCFS).
Days after the Governor signed this legislation, Phillips 66 said it would stop refining operations at its 139,000-bpd Wilmington refinery in Los Angeles in the fourth quarter of 2025.
Phillips 66 said that the planned closure is not an immediate or hasty reaction to California’s new legislation, but a long-term view that refining in the state would become even more challenging than it is now.
Phillips 66 has already converted its San Francisco refinery into a facility to produce renewable diesel. The end of refining at the Wilmington refinery in Los Angeles will see one of the top U.S. refiners officially stop all crude oil refining operations in the state of California.
By Charles Kennedy for Oilprice.com
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Phillips 66 has been quick to say the alternate market for this acreage is signifiant, but yet the state of California has a strict process that at best, this acrage would be very doubtful that it could obtain a no further action letter from the state to build residential houses on acreage that has been contaminated for 100+ years and perhaps, they will be lucky to possibly obtain a no further action letter from the State after sinking perhaps 100 wells to pull all of the contaminants from this soil and possibly obtain allowance to sell the acreage for commercial purposes. Recovery could take 30+ years, as Phillips closed their refinery in KC in 1982 and and it has taken years to recover hydrocarbons.
While developers are saying being this close to water and 660 acres available to allow a developer to salivate over building homes or condo's for residential properties, numerous accidents, explosions of any hydrocarbon, that is in the past in 1989 in Houston which killed 23 employees after releases from tanks and pipelines, which pipelines under the 660 acres are so numerous, that in the 1920's and 1930's were never documented that even the previous owners had no knowledge where all of these pipelines are and whether they still contain hydrocarbons in the linefill, as in that period of time no regualtions required any documentation of pipelines no longer in service.
It is doubtful that the state of California would permit, individuals to purchase residential homes, on top of acreage , that even developers have no knowledge, nor the state has any knowledge as to what sits underneath this 660 acres. In the 1930's it was very common, to construct pipelines with, asbestos mixed with concrete, so when pipelines were suppose to be taken out of service, these lines were never touched, due to the risk of asbestos contamination. So the lack of regulations of that time of ignoring them and the lack of documentation, highlights the risk to employees and future homeowners.
I read an article on the state of Hawaiii/California on the govt process for cleanup. Under a 10 acre site in Hawaii, the contamination cleanup was estimated to cost of $3 million, which when they dropped many more wells, it wound of costing $20-25 million and that was just on 10 acres, can you imagine what the cost would be for 660 acres. Plus, those are dated costs so inflation will just elevate the cost.
It will be interesting to watch this process unfold.