Why do Californians pay so much for gas?

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Gasoline prices in California edged higher again on Tuesday, hitting an average of $5.84 per gallon – a little over a penny more than Monday’s average, according to the American Automobile Association (AAA).

Drivers in metro Los Angeles are paying an average of $6.14/gallon, nearly 80 cents more than a month ago and 30 cents more than a year ago as gas prices tread dangerously close to L.A.’s all-time record of $6.50/gallon from October 2022.

For comparison, drivers in southern states such as Mississippi, Georgia, Louisiana, South Carolina and Alabama only pay around $3.30/gallon.

So why are gas prices spiking now? And why do Californians always pay more?

In the short term, AAA says global oil prices have risen to more than $90 per barrel while demand also continues to rise. At the same time, domestic gas stock has declined slightly.

So, some of this can be attributed to the basic economic law of supply and demand.

However, in Southern California, experts say regional -and political- factors play a more significant role.

“According to my last check, we have no less than four refineries in South California that are having either unexpected outages or are unplanned maintenance,” says Patrick De Haan, Head of Petroleum Analysis at GasBuddy. “That is putting a tremendous amount of pressure on the gasoline market and sending prices skyward very similarly to what we saw last year.”

But perhaps the greatest factor, Haan says, is a lack of refining infrastructure that goes back decades and has isolated the Golden State.

“California has made it very difficult to be a refinery here. In fact, the number of refineries here has fallen by more than half since 1991,” he says. “It’s a spectacular level of policy failures from pushing renewable fuels, which cut the amount of output at refineries, to [emissions regulations] that require special blends in special areas at special times of the year.”

Caught in the middle, of course, are drivers who have no option but to dig deeper into their pocketbooks just to stay on the road.

Newsom’s War on Big Oil

California Gov. Gavin Newsom has essentially declared war on the oil industry, accusing companies of “lying and gouging Californians to line their own pockets.”

A new state law took effect in July that aims to penalize Big Oil if a new independent watchdog panel determines companies have committed misconduct or manipulated the market.

Newsom points to record oil company profits in 2022 which, he says, came partially at the expense of “fleeced” California drivers.

“With this legislation, we’re ending the oil industry’s days of operating in the shadows. California took on Big Oil and won,” Newsom said when he signed the bill in March. “We’re not only protecting families, we’re also loosening the vice grip Big Oil has had on our politics for the last 100 years.”

The Western States Petroleum Association, which represents petrol companies in California, Arizona, Nevada, Oregon and Washington, argues that drivers should direct their anger at Newsom and California’s policies – not them.

“[Newsom] has implemented a de-facto oil production ban in the state by holding back permits, and he is set to phase out all production in the state over the next few years, making our state and nation more dependent on foreign oil,” WSPA said. “The first $1.30 Californians pay at the pump goes to taxes and regulatory fees and the programs [Newsom] is mandating on our residents.”

The trade group also accuses Newsom of supporting climate policies dictated by “coastal affluent regions” of California to the detriment of the rest of the state.

“Californians are justifiably frustrated by high gas prices, and the reasons for this are complex,” says KTLA consumer reporter David Lazarus.

“Yes, we have high gas taxes, which push pump prices higher. The thing is, we also have the most heavily populated state and roads that take a beating every day. I’m not saying all our gas-tax revenue is spent wisely, but the intent is to maintain our vital transportation infrastructure with repairs to roads, bridges, levees and other core transit resources.”

California’s commitment to reducing fossil fuel dependence, Lazarus says, certainly has consequences. But he doesn’t necessarily take Big Oil’s arguments at face value or see them taking any steps that would negatively impact their bottom line.

“Can’t we just drill domestically and do an end run around OPEC? No. We’re already the world’s largest oil producer, and there isn’t enough domestic oil to change the equation significantly,” he says. “Moreover, because oil prices are set by global markets, any fuel produced domestically by oil companies would be priced at prevailing market levels. Oil companies aren’t in the business of undercutting their own profits.”

While the reasons for California’s painfully high gas prices might be complex, De Haan sees a simple solution, albeit one that is unlikely to materialize in the near term.

“The politicians will not talk about refineries. They’re talking about oil and that doesn’t really help us. Policies are certainly a big part of this. But at the end of the day, we simply need more refining capacity.”

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