Los Angeles, CA — The Chevron El Segundo refinery explosion and fire last week was a wakeup call that the California Energy Commission (CEC) needs to mandate minimum refinery inventory and resupply rules ASAP, Consumer Watchdog wrote in comments to the CEC. While so far consumers have dodged a big increase in gas prices over the last week, the explosion shows how much the rules are needed.
“Californians are currently left defenseless against gasoline price spikes because there are no rules to force oil refiners to resupply the lost fuel after a refinery outage or to maintain minimum inventories, despite Governor Newsom calling a special session in 2024 to enact resupply and minimum inventory rules,” Consumer Watchdog wrote in comments on the petroleum supply stabilization proceeding that was recently opened.
“The Governor signed the law about one year ago, yet the Commission hasn’t drafted a rule and is slow walking the process. If it was urgent enough to call a special session, it should have been urgent enough to fast track the regulation implementing the special session law, ABX2-1.”
“State research has shown that when the days of supply fall below 15 days, that’s when gasoline prices spike and oil refiner profits spike too. The fact that there are no regulations to guarantee a minimum number of days of supply, or to require refiners to have resupply plans when their refineries go down, has left Californians without adequate protections against the price spikes that can ensue from this type of fire,” the comments continue. “A simple rule requiring minimum inventories as a cushion for when refineries go down, and requiring resupply obligations when refineries catch on fire, should not have been hard to develop.”
The comment reviews CEC data making the case that imposing these rules will not hurt refinery operations but will protect consumers from billions of dollars extra paid at the pump during refinery turnarounds and disasters.
Among the data:
• In testimony to the Senate Standing Committee on AB X1-2 during the 2nd extraordinary session, on October 8, 2024, CEC Vice Chair Siva Gunda stated that that when 15 days of supply exist, price spikes don’t happen. The biggest inventory dip came in 2022 when inventory fell to 12.5 days of supply, touching off price increases. New rules could require gasoline refiners keep on hand only up to a maximum of a few more days’ worth of supply, Siva said. The Vice Chair estimated it would cost refiners about $20 million to $25 million to maintain enough supply to avert $1 billion to $2 billion worth of additional consumer costs at the pump, a no-brainer. Considering that the four refiners controlling 90% of California’s gasoline market made a total of $25 billion in profits last year, the investment in inventory totals one tenth of one percent of those profits—cab fare for refiners.
• More than a year ago, a DPMO presentation in a gasoline supply reliability workshop, featured an International Energy Agency slide showing that numerous countries have requirements on how much inventory must be held by refineries. The same slide was shown in a September 24 workshop last month. The practice is commonplace. In 2021, Australia passed a law assigning a minimum stockholding obligation to refineries of 27 days of gasoline and jet fuel and 32 days of diesel. The specifics are outlined here. Other countries such as France, the UK, and South Korea also have similar obligations, according to research by Consumer Watchdog.
•There would be no need to build additional storage for these supplies, as refiners claim. A chart shown by the CEC in a September 24 workshop on fuel supply stabilization pinpointed that between 2019 and 2024, the average annual utilization rate of refinery storage capacity is 57% with utilization rates varying monthly between 55% and 61%. There is plenty of space to store additional inventory without including storage capacity at merchant storage terminals or other off-refinery storage sites. The rule would not constrain refinery operations.
