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Jul 16, 2019

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Marketplace Morning Report

Oil is cheap, but gas is still expensive in California

Gigi Douban Jul 22, 2015
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Willie Hudgins drives a 2006 Ford Expedition stretch limo. Earlier today, he pulled into a Mobil station in Birmingham, Alabama to get gas. He paid $2.39 a gallon. Happily.

“Oh, it’s like, man, pennies on the dollar,” he says, compared with before global oil prices collapsed.

The national average for gas is $2.74 a gallon. Then there’s California, where prices are almost always higher.

“Typically, California prices should be about 40 cents above the national average,” says Severin Borenstein with the Energy Institute at UC Berkeley’s Haas School of Business.

But in Los Angeles right now, people are paying a dollar and a half more than the national average, he says.

Part of that is because California requires a cleaner burning fuel, Borenstein says, “and as a result, we can’t trade gasoline with other parts of the country. We need this special blend.”

Because there’s no quick way to relieve a shortage, he says, prices spike when there’s a hiccup in the production of that special blend — like an explosion at the Exxon Mobil refinery in Los Angeles in February. Borenstein says those usually fizzle out within a month or so, but not this time.

“It has definitely raised concerns that this isn’t just natural shortages,” he says.

One explanation: the California Energy Commission says refineries are making more than twice the profit per gallon than a year ago.

And finally, analysts say, when other states have shortages, they bring gasoline in through pipelines…but California doesn’t have pipelines, so when the gas finally comes, it comes by barge or tanker, which costs more. Ed Hirs, an energy economist at the University of Houston, has a message for California residents: “You guys are screwed!”

“Those are highly technical industrial terms,” he adds. “You’re screwed in California.”

Hirs says California’s refineries can’t meet consumer demand. And he says when you combine that with a lack of infrastructure, you’re going to pay. Just like consumers did in New England this past winter. There, Hirs says, there were no pipelines to bring in enough natural gas to meet electricity demands.

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