Study Predicts California Fuel Supply Shortages


SAN FRANCISCO (Dow Jones) — California could see gasoline shortages as early as 2015 as new state rules aimed at cutting greenhouse-gas emissions could shutter more than half the state’s refining capacity in less than eight years, according to a new study commissioned by an industry group.

The state’s Low Carbon Fuel Standard regulation could cause up to seven refineries to shut down, which could eliminate up to 65{fd15d42d1b024b97d6d50958be27cc8145b6addb99e015780abccf2984117bb0} of California’s refining capacity by 2020, according to the study. Drivers would see fuel prices spike, as the remaining refineries would face high costs of complying with the rules, the study predicted. It was compiled by Boston Consulting Group and commissioned by the Western States Petroleum Association, an industry group for oil refiners.

California refiners could face costs of more than $2.50 a gallon, which likely would get passed through to consumers through prices at the pump, the study predicted. It also concluded the rules could cause the state to lose between 28,000 to 51,000 jobs in the petroleum industry.

Oil refiners, corn ethanol makers and other heavy industry have waged a series of court and political battles against California’s Global Warming Solutions Act, also known as AB 32. Their primary complaint has been that the rules, particularly the Low Carbon Fuel Standard, would injure California’s fuel industries and lead to high prices, as refiners struggled to meet the stringent regulations. Now, the Western States Petroleum Association is pressing for state regulators to adjust the rules before the first set of regulations for refiners start in 2015. The organization hopes the study will sway state officials to consider revising the rules to achieve emissions cuts while minimizing costs to the fuel industry.

“We hope the conversation will be better informed because we’re looking at cumulative impacts to refiners, who want to continue to supply the California market, keep employing people and be good stewards,” WSPA President Catherine Reheis-Boyd said in an interview.

Ms. Reheis-Boyd said there is still time for the Air Resources Board, which established the rules, to make changes that would avoid some of the dire, unintended consequences to the fuel industry forecast by the report.

“California’s climate programs are already delivering an increasing quantity of low carbon fuels and we’re seeing more and more clean fuels enter the market,” said Stanley Young, a spokesman for the state Air Resources Board, which established the rules. “Over the past several decades industry has consistently overestimated the costs of clean air programs while ignoring the significant economic and public health benefits they provide.”

California’s climate regulations require greenhouse-gas emissions cuts from oil and gas producers, refiners and fuel suppliers, electricity generators and heavy industry and from other major greenhouse-gas emitters. The rules aim to cut heat-trapping gases in the state to 1990 levels by 2020.

The study predicts California’s climate rules will cause distortions in the state’s fuel markets, in which refineries that make gasoline, diesel fuel and other products will find the California requirements too expensive and will sell their fuels to customers in other states and countries to avoid the high costs.

The study also predicted manufacturers and other heavy industries that use a lot of energy would likely leave California for other states or countries that have lower energy prices.

The study comes as California already has struggled against high retail gasoline prices, with prices in the state ranging from $3.40 to more than $5 a gallon, according to That compares to average nationwide retail gasoline prices of $3.57 a gallon, according to data released last week by the Energy Information Administration.

A lack of sufficient quantities of cellulosic ethanol or other types of low-carbon biofuels would put further pressure on California fuel makers, the study found.

California refiners are required to use increasing amounts of cellulosic ethanol or other biofuels made from nonfood plants such as switchgrass that use less energy, water and land than food crops. The U.S. industry for such next-generation biofuels has gotten off to a slow start, with cellulosic ethanol makers not yet making products on a large, commercial scale. Because of this, U.S. refiners that have to comply with federal biofuel requirements, have been importing biofuel made from sugarcane from Brazil.

Brazil doesn’t make enough sugarcane ethanol to meet the needs of California refiners under the state’s current requirements, the study found.

California’s cap-and-trade program, which is separate from the Low Carbon Fuel Standard, would add more costs to fuel suppliers, in the form of purchases of carbon allowances, the study found.

The cap-and-trade program, scheduled to start in 2013, will place a limit on emissions of heat-trapping gases, like carbon dioxide, in the state. Under the program, the emissions cap will decline over seven years, and utilities, refiners and other large polluters will have to cut their emissions or buy pollution “allowances,” or permits to pollute.

About 14 California refineries produce 834,000 barrels of gasoline a day and about 340,000 barrels of diesel and 270,000 barrels of jet fuel daily. Together, they produce about 32 million metric tons of carbon dioxide, about 8{fd15d42d1b024b97d6d50958be27cc8145b6addb99e015780abccf2984117bb0} of the state’s total, according to the report.

Source:  Dow Jones

Posted by Haylie Shipp


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