California refinery fire will boost gasoline prices, experts say

AP via ADN.com ^ | TERRY COLLINS | TERRY COLLINS

[thackney]

A major fire at one of the country's biggest oil refineries that sent scores of people to hospitals with breathing problems will push gas prices above $4 a gallon on the West Coast, analysts said Tuesday.

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Font size : A | A | A The fire, which sent plumes of black smoke over the San Francisco Bay area, erupted Monday evening in the massive Chevron refinery about 10 miles northeast of San Francisco.

It was out early Tuesday, although officials were still conducting a controlled burn.

...

It produces about 150,000 barrels of gasoline a day — 16 percent of the West Coast's daily gasoline consumption of 963,000 barrels, according to Kloza.

[Carry_Okie]

Did all of your competition produce the exact same product, same specification?

Very close. It was a commodity product in the medical device business, sold worldwide.

The only difference in gasoline brands is the additives added at the loading rack.

Not true. California gasoline is very different than the rest of the nation.

Refining margins are very tight. The don't allow to spend hundreds of millions of dollars per major unit to duplicate capacity and not use it.

That is not true either. Across a nation this large and together with a futures market, marginal capacity can be distributed among sellers. The only thing that makes it true in California is the differentiated specification and razor tight production capacity.

The NRDC is the petrochemical industry's best friend, particularly for the way it sues to get regulations that put their competitors out of business and force consumers to use more of their products.

[thackney]

The only difference in gasoline brands is the additives added at the loading rack.

Not true. California gasoline is very different than the rest of the nation.

True enough. Many areas have specific gasoline requirements.

The point I was trying to get to, is that competitors sell the same product, often with the competitions additives stored and loaded at their truck loading racks. California, while have a unique requirement, is not unique in having such a requirement.

Gasoline blending products are routinely shipped to different parts of the nation and blended to meet the local recipe.

[thackney]

I provided the above gasoline requirements map as an example, but I find it is out of date. The more current map is located here:

[thackney]

I provided the above gasoline requirements map as an example, but I find it is out of date.

The more current map is located here:

http://www.exxon.com/USA-English/GFM/Files/US_Gasoline_Map.pdf

[Carry_Okie]

Gasoline blending products are routinely shipped to different parts of the nation and blended to meet the local recipe.

If what you were saying was true, then a fire at the Chevron plant in Richmond would affect gas prices nationwide.

It won't. The price increase will only be in locations served by California refineries.

California is a captive market for gasoline producers with a fatter markup and you know it. The reason is regulation of the supply side. The NRDC is the petrochemical industry's best friend.

[thackney]

The 240,000-barrel-a-day plant is operating the fluid catalytic cracker, which processes vacuum gasoil into gasoline and lighter products, off of feedstock stored in tanks, said the person, who asked not to be identified because the information isn’t public. The refinery is also running one of two units at an Isomax hydrocracking complex at 60 percent capacity and the lube plant at low rates, the person said.

http://www.businessweek.com/news/2012-08-08/chevron-said-to-cut-california-gasoline-production-after-fire

Not the whole nation, just the neighboring areas.

[Carry_Okie]

I was comparing California and Texas.

The price difference between Texas and California today is $0.40 per gallon.

It ain't all taxes.

Oregon and Washington are now using "special" formulations too, which is news to me, thank you.

[Carry_Okie]

The point I was trying to get to, is that competitors sell the same product, often with the competitions additives stored and loaded at their truck loading racks. California, while have a unique requirement, is not unique in having such a requirement.

If what you were implying was true, then the price of gasoline would go up, nationwide, because of a refinery fire in California.

It won't. California is a captive market. It will bear nearly the entire market response.

[Carry_Okie]

BTW, per your new map, Oregon and Washington are now selling boutique gasoline too. In fact, there are MORE states now specifying boutique gasoline than your old map, this despite the absolute proof that it will raise local prices.

Why? Use of such formulations is pursuant to greenie lawsuits and EPA regulations "forcing" local air quality "attainment targets" set by a complicit Federal bureaucracy.

There is a reason the Environmental Grantmakers' Association was founded with Rockefeller money.

[Drango]

That's wacky. You really think Chevron would start their own infrastructure on fire to raise prices?? Come on now; that stuff makes people here at FR look like whackjobs.

And yet at least 3 posters have suggested Chevron did it. Rolling eyes and wondering how flat the earth is on their planet.

[1010RD]

Is a standard national mix possible and would it lower prices or simplify the market in a way that benefits consumers?

[thackney]

Looks to be a pretty steady difference.

It ain't all taxes.

about 3/4 of the difference is taxes.

http://www.api.org/Oil-and-Natural-Gas-Overview/Industry-Economics/~/media/Files/Statistics/gasoline-diesel-summary.ashx

Oregon and Washington are now using "special" formulations too

But not the same formulation as California. Many refineries now produce gasoline blending components and the blenders make the final product.

[Carry_Okie]

about 3/4 of the difference is taxes.

Not in terms of cost per mile.

[thackney]

Is a standard national mix possible and would it lower prices or simplify the market in a way that benefits consumers?

I don't see that happening. The industry has changed over the years and more refineries produce gasoline blending components and local blenders, usually at the truck loading rack, create the mix for that local recipe. This way a pipeline serving across several states can deliver product at each location and then it is put in local storage tanks. There it is blended into the local requirements and loaded on to trucks for delivery to retail stations.

To require one mix is to step over individual state rights to set their own requirements as CA, MN , MI, OR, WA and FL have done. Others have different vapor pressure limits due to different climates.

If you look at the following chart, you can see how finished motor gasoline sales from the refinery have greatly dropped off, but the difference is much less when you include the blenders. The refineries are selling more blending products and less finished gasoline. The industry has already adapted to the requirements and is set up to easily adapt to further changes with this system. It has been this way for quite a while.

U.S. Total Gasoline Retail Sales by Refiners
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=A103600001&f=M

U.S. Total Gasoline All Sales
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=C100000001&f=M

[thackney]

Nearly everything cost more in California than Texas. This isn’t just a function of the refining industry.

If you move from Houston, TX to Los Angeles-Long Beach, CA

Groceries will cost: 33% more
Housing will cost: 137 %more
Utilities will cost: 26% more
Transportation will cost: 14% more
Healthcare will cost: 12% more

http://cgi.money.cnn.com/tools/costofliving/costofliving.html

[thackney]

about 3/4 of the difference is taxes.

Not in terms of cost per mile.

Actually, taxes are an even bigger part of the equation. That 3/4 only represented taxes on the finished product at the final sale to the consumer.

In reality, there were higher taxes all along the way from the oil pump to delivery to the local retail station. All along the way taxes increased the differences between the two locations.

[Carry_Okie]

Nearly everything cost more in California than Texas.

Yep, because in addition to taxes, nearly every industry and supplier here uses energy that costs more, from production costs and transportation to what they have to pay their employees to live here.

This isn’t just a function of the refining industry.

You don't (with any honesty0 have the rhetorical luxury of claiming that gasoline is a uniform commodity and that differences in pricing are because of other factors than production costs, because the product isn't close to being equivalent from place to place, if only because of its alcohol content. Please explain why else my car got nearly 50% better gas mileage in Texas on 82 octane gas than in California on 87 octane gas and how that doesn't represent a higher cost in California due ONLY to formulary differences. In any place I've ever been, that represents 50% higher cost and also means 50% more gasoline sold, per mile. Gosh, if capacity was so tight, they could reformulate... Oh, wait...

You then turn around and claim that a $0.40 per gallon difference in price is primarily the consequences of non-uniform "costs" in which transportation and production costs due to fuel is somehow magically not a factor. Nor did I ever imply that taxes weren't higher here.

BTW, your comparative cost numbers between locations are bogus. Long Beach is upper crust compared to most of Houston, or most of Los Angeles for that matter. As an example of the credibility of this survey, I compared Bakersfield CA to San Antonio, TX:

Groceries will cost: 26% more
Housing will cost: 2% more
Utilities will cost: 21% more
Transportation will cost: 1% more
Healthcare will cost: 10% more

Please explain why I should regard this survey you cited as credible when it says that the costs of transportation in Bakersfield, CA and San Antonio, TX are equivalent. Even you would agree that is plainly absurd as virtually all the gasoline used in Bakersfield is trucked in from LA. I know for a fact that the last time I drove through both Bakersfield and Texas only weeks apart, that the price of gas was some $0.50 different.

After the twenty years of market racketeering in everything from knowingly putting MTBE into plastic tanks that the industry KNEW would leak, to therefore replacing TWICE all the underground storage tanks without any necessity in the first place, and thus eliminating virtually every mom and pop gas station, the mandated use of huge amounts of natural gas for the thermal oxidation for less VOC than is produced by one tree, the regulation of the timber business to the point that plastic lumber and concrete siding is economic... for you to claim this virginity in the owners of the petrochemical industry, when all of it is mandated or inflected by a legal/activist process that is heavily funded by said OWNERS of the oil and gas industry, is so far beyond credibility I don't know why you bother. I have never yet seen a government mandate for some environmental purpose that does not use more energy.

Not one. Gad, recycling alone was a huge energy scam in everything but aluminum.

Just because you don't see it from within the industry doesn't mean that this kind of influence does not exist. Nor does citing tight margins have a damned thing to do with ROI in a high volume commodity business. Nor have I ever said that the companies themselves exert this influence, although they certainly did when it came to mandating MTBE and it was hand in hand with the NRDC (David Donniger was there at the EPA meeting with no other NGO represented). The bulk of this influence is exerted by the industry's owners, and increasingly it is done through middlemen such as Tides Foundation thus to launder the influence money. That influence is becoming harder and harder to trace.

So when a refinery has a fire (and they all do from time to time), and the price spikes to the point that the fire was profitable, it is no wonder people blame the company for those market conditions because something stinks when the price jumps that much due to such an actuarially predictable cause. Had we a real free market, those inflections would be far smaller because the production impact would be more distributed and capacity not so tight.

To the latter, and contrary to your statements, Chevron did try to expand that plant and failed. Why? Environmental lawsuits. Had Chevron built that expansion, we would not see as large a spike in prices as is likely as a result of the fire. Hence, your claim that they did not need extra capacity is wrong and my contention that they could not build due to environmental groups is exactly correct. Without those lawsuits, Chevron would not see an increased cash flow resulting from its own mishap.

QED

[thackney]

You have a good day.

God Bless you.