On Monday, October 14 2024, California Governor Gavin Newsom signed a bill that could require oil refineries in the state of California to maintain a minimum inventory of gasoline. The state's energy commission can set new laws
Read more about the bill at: https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320242AB1
This bill however will raise gasoline prices. Please keep reading.
What does the bill do?
When the bill takes effect in 90 days, a state regulatory agency, the California Energy Commission, will have the authority to set constraints on storage levels for each refiner, each fuel and each blending component, per the bill. The agency will also be able to adjust inventory minimums, as well as establish conditions under which refiners can draw down or rebuild reserves.
The legislation will also allow the regulator to ensure that refiners have resupply plans in place ahead of maintenance outages and to set criteria that must be met before such events occur.
Why gasoline in California already costs on average $1.47 higher than the national average
California already has the highest gasoline taxes in the nation and stricter environmental regulations, including cap-and-trade and low carbon fuel standard.
During the last decade, 7 (seven) California refiners closed die to high operating costs.
Three days after Governor Gavin Newsom signed the bill, Phillips 66 announced closure of 2 refineries in Wilmington and Carson, California in late 2025. These refineries represent 8% of the state's refining capacity.
The gasoline refining market in California is a tight market: there aren't enough refineries to produce extra gasoline if another refinery isn't producing gasoline due to maintenance.
Why this bill will lead to higher gasoline prices
California’s new law will require refiners to maintain larger stockpiles of fuel, supposedly to reduce supply shortages.
But - gasoline has a shelf life of a few months.
Refineries already maintain on average 2 weeks of gasoline supply. To maintain more gasoline inventory, refineries will have to spend hundreds of millions of dollars and building and maintaining more gasoline in inventory. Some some refineries may elect to shut down to avoid new and burdensome costs.
The gasoline market will be even tighter, leading to higher prices.
Higher gasoline prices - Part 2
Three days after the November general election, California Air Resources Board (CARB) is preparing to vote and change the state’s low-carbon fuel standard, which will requires refiners to blend greater amounts of renewable fuels into diesel and gasoline. In September 2023, CARB last forecasted that the stricter standard would increase gas prices by 47 cents a gallon next year.
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