A new paper released by a team of researchers at The University of Southern California (USC) and California University-Berkeley (UCB) warns that the Golden State could soon face energy crisis conditions created by anti-oil and gas state policies and the global supply shock. The paper authored by USC Professor Michael Mische, UCB Prof. James Rector and UCB Graduate Research Assistant Joseph Silvi, finds that the state’s gasoline market is “entering a period of acute supply shortages directly attributable to prior refinery closures, and the long-term systemic decline in in-state crude oil production which have been further exacerbated by the ongoing war in the Middle East.”
Alarmingly, the researchers warn that “dramatic reductions in gasoline and crude imports have yet to hit California’s physical supply. California depends heavily on CARB (California Air Resource Board)-compliant gasoline from Asian refiners which provide nearly all of California’s gasoline imports–roughly 20% of the overall gasoline supply for the state.”
Most Asian refiners have been forced to curtail exports of refined products since March 1 due to the disruption of crude exports through the Strait of Hormuz, leaving the state scrambling to find alternatives from other countries. It’s a real challenge in a world in which the global crude markets are undersupplied by 7 to 10 million barrels per day.
Mische, Rector, and Silivi warn that it takes roughly 25 to 45 days for tankers ships to make the trip across the Pacific Ocean, meaning the real impacts would only begin to be felt by Californians during the latter days of April. “Frankly, we’re running out of fuel as we speak,” Mische told me in a recent interview. “We’re down to about 10-day supply of fuel right now and we’ll be feeling stress of that because of the issues in the Middle East and the length of time it takes to move product to California.”
Mische adds that the fuel stresses created by the looming supply shortage will result in further price increases for gas and diesel fuel at the pump in a state whose prices are already about $2.00 per gallon above the national average.
A Self-Imposed Energy Crisis
It is key to note here that the Golden State’s looming energy crisis has arisen almost entirely as the result of years of policy decisions made by the state’s government. Drivers in California have long paid the highest gasoline prices in the nation thanks largely to the state’s onerous gasoline tax, which also ranks as the highest of any state. As time has gone on, the state has layered additional taxes, fees, and other costs to pump prices stemming from an array of policies designed to make driving more costly and force drivers to purchase electric vehicles under Governor Gavin Newsom’s aggressive EV adoption targets.
At the same time, legislative actions and regulatory measures enacted by CARB and other state agencies have been designed to shut down the state’s once prolific oil and gas industry. Drilling permits take months, even years to acquire when they aren’t outright denied. The Newsom administration has refused to allow the building of much needed new pipelines and worked overtime to force the closure of California’s handful of remaining oil refineries, creating the need to import refined products in addition to crude oil.
As a result, a state which once exported its own oil production and refined products to other states and overseas has become broadly reliant on imports to meet the needs of what is the world’s 5th largest economy. It’s a dangerous formula similar to the fix in which Germany currently finds itself after 20 years of the same kinds of policy choices.
“We’ve been telling them for years that this policy of relying on foreign governments for oil and gasoline is probably not in the best interests of California,” Mische says. “Considering we have the fifth largest reserves in the United States, why don’t we develop these resources internally and keep the money here? And that just fell on deaf ears. So, either the Governor’s incapable or unwilling to fix the problem.”
An Energy Island Headed Towards Crisis
A significant piece of the problem is the fact that the state’s policy choices have turned it into a de facto “energy island” which prevents it from easily and quickly importing gasoline, diesel, jet fuel and other products from nearby states. California’s Low Carbon Fuel Standard (LCFS) mandates a special blend of gasoline not used in the rest of the country. The research team has urged Governor Newsom to temporarily suspend the LCFS for the duration of the current crisis but has been ignored.
But even if Newsom were to agree, the absence of pipelines coming into the state would present a roadblock, as the paper notes. “[S]ince California has no in-bound pipelines, this action will not result in additional gasoline at the pump until mid-May unless more drastic measures such as rail or truck transportation is used.” The researchers note that the lack of pipeline capacity would result in hundreds of additional tanker trucks along with hundreds of rail cars streaming into the state every day.
Mische is concerned that a very real crisis is looming with no one in charge apparently willing to take responsibility for doing anything real to address it. He testified last month before the state assembly in favor of a bill which would provide some relief to consumers, but the legislation didn’t even survive a committee vote.
Governor Newsom has used the rising gasoline prices as an opportunity to blame President Trump. While it is certainly true that gas prices in California and the rest of the country have risen since the Iran Conflict started, neither the President nor anyone else at the federal level can be blamed for the state’s $2/gallon price premium at the pump. Nor is anyone outside the Golden State to be blamed for the conscious decision by state policymakers to shut down their oil, gas, pipeline and refining sectors and rely on countries like Iraq, South Korea, India and even the Bahamas for their state’s energy needs.
The current global oil and natural gas supply crisis has served to highlight the enduring adage which holds that energy security equals national security. Everywhere outside California, the United States enjoys one of the highest degrees of energy security on earth. Inside California, a very real energy crisis is brewing.
