If you are on the road this July 4 weekend, you are not alone.
AAA predicted more than 61 million motorists would be on the nation’s roads during the long holiday weekend. There is good news and not-so-good news for those motorists, depending where they live.
Nationwide, average gas prices have dipped slightly. According to data from GasBuddy, the national average price of gasoline just before the holiday dropped for the first time in three weeks, falling 3.8 cents to $3.14 per gallon. That price is a significant 32.1-cent drop from what motorists were paying this time last year. The easing of geopolitical tensions in the Middle East is credited with the drop.
But California drivers will still pay the highest rate in the nation for gas. The average regular unleaded gas price in California on June 27 was $4.61, according to AAA.
Many factors explain the long-existing gap between California and nationwide gas prices. They include the requirement that gas sold in California must be produced with a special pollution-curbing formula.
But in a recent 24-page letter to Gov. Gavin Newsom, a top state energy official warned that recently-imposed regulations, including the enactment of a state tax hike on gas, may further increase the gap.
Siva Gunda, vice chairman of the California Energy Commission, recommended state plans to quickly phase out use of petroleum-based fuels in California need to be changed to stabilize prices and maintain adequate supplies.
On Friday, July 1, a state sales tax hike went into effect — increasing the rate from 50.6 cents per gallon to 51.2 cents. The tax on diesel fuel increased from 45.4 to 46.6 cents per gallon.
Possibly further increasing gas costs over time are stricter state refinery rules imposed last year to encourage production of lower-carbon fuels to enable California to reach its goal of cutting fuel use by 94% by 2045. Industry officials claim the combined increases of the sales tax hike and lower-carbon rules will raise the per gallon gas price about 70 cents. State officials contend the increase will not be that steep.
Industry officials warn prices also could increase with Gov. Gavin Newsom signing into law in 2023 a plan that penalizes oil companies if their profits are too high. So far, the California Energy Commission has not imposed any penalties or determined what counts as “excessive profits.”
But the commission still plans to set rules requiring oil refineries to keep a minimum level of fuel on hand to avoid shortages when refineries go offline for maintenance. Recently, two major oil companies — Phillips 66 and Valero — announced plans to shut down refineries in Los Angeles and Benicia. The two refineries produce more than 17% of the state’s refining capacity.
Noting the state now imports 78% of its oil, Rock Zierman, the CEO of the California Independent Petroleum Association, said, “If California is serious about stabilizing gas prices, it must increase local crude production.”
In April, Newsom directed energy regulators to work with refiners to develop steps to ensure the state maintains a reliable fuel supply as California transitions away from fossil fuels.
Just days ago, Gunda presented Newsom with a 24-page letter recommending steps and making observations.
• Prioritize Kern County oil production in “existing, established and densely developed oilfields,” but not in areas surrounded by homes, schools and other sensitive sites. The recommendation is a near-reversal of the administration’s aggressive clamp down on in-state oil production in pursuit of a quick transition to zero-emission transportation.
• Pause penalizing oil companies for excess profits, while pursuing other policies to lower prices and maintain a steady oil supply.
• Although demand for gasoline in California has continued to decline, Gunda noted there is a “credible risk” of additional refinery conversions or closures that could lead to volatility in fuel markets. Without investment in retrofitting plants, Gunda warned, refineries’ processing costs could go up and their efficiencies go down.
• California Environmental Quality Act lawsuits have stalled Kern oil production and caused several crude oil pipelines that carry oil to refineries north and south to run only intermittently, increasing oil transportation costs.
• Relying on imported oil subjects California to volatile geopolitics.
Gunda’s message is clear: Don’t abandon California’s goal to eventually phase out petroleum fuel use. But the phase out must be done in a more measured, responsible manner that considers the consequences.