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California switches to winter gasoline to ease cost

10.09.2012  | 

The shortages underscore California's relative isolation from the rest of the nation in terms of energy. The state is the largest fuel market in the nation, but its strict production rules make importing gasoline from other areas difficult; and there are no fuel pipelines connecting it to markets across the Rocky Mountains.

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By JIM CARLTON and ERICA ORDEN

SAN FRANCISCO -- Experts predict California's skyrocketing gasoline prices will start easing in the next few days, after an idled refinery resumed production and Gov. Jerry Brown ordered refineries be allowed to make winter-blend gasoline earlier than usual.

Even so, some are questioning whether the price surge was a result of market manipulation, and Sen. Dianne Feinstein has called for a government investigation into the matter.

The call came as California gas prices have jumped 50 cents/gal over the past week to a statewide average of $4.67/gal for regular unleaded gasoline Monday. That compares with $4.17/gal a week ago and $3.89 nationally, according to estimates by AAA, the national automobile club.

The increase was largely the result of oil-supply problems caused by ExxonMobil’s big refinery in Torrance, Calif., losing power and going out of service, which compounded disruptions from an Aug. 6 fire at a Chevron Corp. refinery in Richmond, Calif., said Trilby Lundberg, president of the Lundberg Survey, which tracks gasoline prices nationwide.

ExxonMobil said it had fully restored production in Torrance as of Friday, but production still hasn't been fully restored at the Chevron refinery in Richmond. Both refineries produce a special formulation of gasoline that meets California's stringent air-quality standards.

Ms. Lundberg predicted gasoline prices would start easing in California over the next several days, due to the refinery going back on line.

In addition, Mr. Brown called Sunday for production of the winter-blend gas that is used when ozone-causing smog isn't such a problem. Winter gasoline usually isn't released until after Oct. 31.

The shortages underscore California's relative isolation from the rest of the nation in terms of energy. The state is the largest fuel market in the nation, but its strict production rules make importing gasoline from other areas difficult; and there are no fuel pipelines connecting it to markets across the Rocky Mountains.

Also, because its 14 refineries are operating near the limits of their capacity, disruptions can quickly cause shortages.

Other refineries outside California, including along the Gulf Coast, could make the cleaner-burning blend of gasoline that the state requires in a critical shortage, provided a worthwhile price, said Ms. Lundberg.

“They would have to be incentivized to spend more to make our formula and ship it here,” she said.

Despite the state's known production limits and their effect on prices, an outcry over the increase erupted over the weekend. In a letter to the Federal Trade Commission Sunday, Ms. Feinstein, a Democrat, said California motorists are facing the highest gas prices and longest commutes in the country and that a probe is needed to make sure the price hikes are legitimate.

“California's consumers are all too familiar with energy price spikes, which cannot be explained by market fundamentals, and which turn out years later to have been the result of malicious and manipulative trading activity,” Ms. Feinstein said in her letter to FTC chairman Jon Leibowitz.

In a statement, Mr. Leibowitz said, “We do not confirm investigations, but we do have enormous respect for Sen. Feinstein.”


The Wall Street Journal



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