California Gas Crisis: Why Prices Are Skyrocketing and What to Expect Next

Photo byLeslie CrossonUnsplash

California is facing a gas crisis that is pushing prices to record-high levels and causing pain for drivers and businesses across the state. According to AAA, the state average has spiked by 30 cents in the past week alone, reaching $4.67 a gallon on Monday. Some stations in Los Angeles and San Francisco are charging more than $5 a gallon, while one station in Gorda reportedly hit $7.59 a gallon. What are the causes and consequences of this situation, and when will it end?

The Causes

The main cause of the gas crisis is the lack of supply due to refinery outages and maintenance. California has 15 refineries that produce most of the gasoline consumed in the state, but several of them have been offline or operating at reduced capacity in recent weeks due to planned or unplanned shutdowns. For example, Chevron’s Richmond refinery, which accounts for 15% of the state’s refining capacity, was shut down for two weeks in September due to a fire. Phillips 66’s Rodeo refinery, which accounts for 6% of the state’s refining capacity, was shut down for most of October due to a power outage.

Another cause of the gas crisis is the high demand for gasoline in California, which is driven by several factors. One factor is the economic recovery from the COVID-19 pandemic, which has increased travel and activity levels in the state. Another factor is the seasonal switch from summer-blend to winter-blend gasoline, which usually occurs on November 1. Winter-blend gasoline is cheaper and easier to produce than summer-blend gasoline, which is designed to reduce smog emissions in warmer weather. However, due to the supply crunch, some refineries have delayed or skipped the switch, resulting in higher production costs and lower output.

A third cause of the gas crisis is the limited ability of California to import gasoline from other sources. California has a unique gasoline market that requires a special blend of gasoline that meets its strict environmental standards. This blend is not widely available outside of the state, and only a few places such as Singapore can produce it. Moreover, importing gasoline from overseas is costly and time-consuming, as it involves shipping and logistics challenges. Therefore, California relies mostly on its own refineries to meet its demand for gasoline.

The Consequences

The gas crisis has significant impacts on consumers and businesses in California. For consumers, the high gas prices mean less disposable income and more financial stress. According to AAA, Californians spend an average of $1,500 more per year on gas than the national average. Some consumers have resorted to driving less, carpooling, using public transportation, or switching to electric vehicles to save money on gas. Others have expressed frustration and anger at the situation and called for government intervention.

For businesses, especially those that rely on transportation or delivery services, the high gas prices mean higher operating costs and lower profits. Some businesses have passed on the extra costs to their customers by raising their prices or adding surcharges. Others have absorbed the extra costs by cutting their margins or reducing their services. Some businesses have also faced challenges in hiring or retaining workers who cannot afford to commute or who seek better opportunities elsewhere.

The Outlook

The gas crisis is expected to ease in the coming weeks as supply increases and demand decreases. According to Bloomberg, wholesale gas prices in San Francisco and Los Angeles have dropped to their lowest level in over five weeks as some refineries have resumed or increased their operations. This indicates that retail gas prices will soon follow suit. Moreover, Governor Gavin Newsom has approved an early switch from summer-blend to winter-blend gasoline starting from October 11, which should lower production costs and boost output.

However, some experts warn that gas prices will remain volatile and unpredictable until all refineries are fully operational and inventories are replenished. They also caution that external factors such as geopolitical tensions, natural disasters, or cyberattacks could disrupt the global oil market and affect gas prices in California. Therefore, consumers and businesses should be prepared for possible fluctuations and shocks in the future.

References:
1. forbes.com 2. pbs.org 3. energy.ca.gov 4. calmatters.org