By Maggie Angst, THE SACRAMENTO BEE
Since 1896, the sprawling Phillips 66 refinery in Rodeo has turned millions of barrels of crude oil into everything from asphalt and kerosene to gasoline and diesel.
But not for much longer. Next year, California’s oldest refinery will begin converting animal fats, food waste and cooking oil into cleaner fuel for trucks and other heavy equipment.
The resulting reduction in carbon emissions will be the equivalent of taking 1.3 million vehicles off the road annually, company officials estimate. That would improve California’s chances of meeting its ambitious climate goals, which include reducing greenhouse gases to 40% below 1990 levels by 2030.
The refinery’s transition comes as California accelerates its historic move away from fossil fuels. It also highlights the careful balancing act officials must perform in their pursuit of a future fueled by clean energy. Advance too slowly, and the state won’t hit its targets. Retreat too hastily from oil and gas, and millions of low-income residents who will continue to rely on it stand to be harmed, experts warn.
Volatile gas price spikes, premature refinery closures and large-scale layoffs of oil industry workers could all be consequences of entering the post-fossil age without proper planning. In other words, California must ensure it will have enough in the tank to get it through the change.
“An unmanaged transition could spell disaster in a lot of different ways,” said California Energy Commissioner Siva Gunda.
To avoid a worst-case scenario, California is working rapidly to electrify its economy with a new infrastructure of transmission lines, wind and solar farms and charging stations. The state is offering incentives to residents who want to add solar panels and battery storage to their homes and buy electric vehicles.
But experts say that’s only part of the equation to ensuring a reliable and equitable transition away from petroleum.
“We’ve thought a lot about how do we deal with the electricity impacts and that is something we’re working on quite a bit,” Quentin Gee, a supervisor for the California Energy Commission. “But now, we need to be thinking a lot about what going to be happening with gasoline demand.”
California pursues transition from gas to clean energy
California will be a different place in 2035 if the goals now in place are realized.
State officials anticipate that 12.5 million electric vehicles will be on the road — at least 14 times the number today — with more than a million new charging stations to keep them there. Wind turbines will float off the Pacific coast for the first time. Fields that once grew alfalfa and dates will instead sprout solar panels.
But in the midst of this revolution, more than half of the vehicles in California — about 17 million — will still be powered by gas, driven by those who will need it to get from home to work and everywhere in between.
DeAngela Manning of Elk Grove will likely be one of those drivers. Manning made a big investment in 2018 when she purchased an SUV, her beloved Acura MDX, to accommodate her husband and six children ages 2 to 16. She’s not ready to start thinking about buying a new vehicle, let alone one in the electric price range.
“We just can’t afford one that’s decent and can fit all the kids,” Manning said as she filled up her tank at a Sacramento Stop & Shop last month. “SUVs are expensive in and of themselves, and I can’t imagine buying an SUV that’s electric.”
On top of the cost, Manning said she was worried about the time it would take to recharge the vehicle. Manning frequently travels long distances as a union representative for her healthcare company, and her husband’s personal business requires him to drive across Northern California on a regular basis.
“I’m not saying that I want to pay these gas prices, but it’s a hell of a lot easier than sitting and charging your car for 30 minutes or more,” she said.
The average purchase price of an electric vehicle is roughly $10,000 above the industry average for gas-powered vehicles, according to Kelly Blue Book. Surveys indicate that the price gap will likely shrink over the next decade, and in the meantime, drivers can offset some of the up-front cost by applying for federal tax credits and California rebates.
Whether prices will drop fast enough, or charging stations proliferate rapidly enough, to entice drivers like Manning to make the switch is a big unanswered question.
And just like failing to provide enough power for electric vehicles could thwart the state’s climate goals, so could underestimating the long-term demand for gasoline.
“There’s a recognition that we are going to phase out gasoline and as we do, we’re going to lose more refineries,” said Severin Borenstein, an energy economist at UC Berkeley. “And figuring out how to manage that so supply and demand don’t get out of whack I think is going to be important.”
That’s why the California Energy Commission, the state’s primary energy policy and planning agency, recently embarked on an 18-month study to better understand the future of demand for fossil fuels. It will analyze the regulatory and market forces driving California’s volatile gas and oil market, including the impact of refineries taken offline for maintenance or closed outright.
The hope is that the study, expected to be ready for public review by mid-2024, will provide a path to clean energy while providing reasonable forecasts for changes to the demand for oil.
California’s major oil companies and their trade organization are encouraged by the prospect of the state’s study, but they’re waiting anxiously to find out what assumptions officials used to derive their forecasts.
Last month, a report criticized the state’s Air Resources Board’s newly-adopted plan for how California will meet ambitious greenhouse gas reduction targets. The Legislative Affairs Office, which advises the state Legislature on policy and fiscal matters, said the plan lacked “a clear strategy.” Without more specificity, LAO added, it could delay action and increase the risk that the state doesn’t meet its 2030 goal of reducing greenhouse gases to a level at least 40% below what they were in 1990.
“Right now, we are dominated by policies that are aspirational, but good energy policy cannot be based on hope,” said Catherine Reheis-Boyd, CEO of the trade organization Western State Petroleum Association. “Consumers deserve a plan that takes care of their concerns for the environment and does it in the most affordable way. Right now, they have no plan.”
Gavin Newsom goes after California oil companies
For nearly two decades, California has committed to limiting its greenhouse gas emissions and moving away from fossil fuels.
Over the past year, that effort has taken on a new level of urgency.
State regulators last summer announced a 2035 deadline to ban the sale of new gas-powered vehicles statewide. Gov. Gavin Newsom in September signed a sweeping package of climate bills that, in part, require California to reach net zero greenhouse gas emissions by no later than 2045. Communities across the state are placing restrictions on new oil wells and gas stations, with some cities banning them outright.
And now, Newsom is leading a campaign to cap the profits of oil companies and punish them for allegedly price-gouging Californians.
“There’s no other jurisdiction in the world, think about that, that’s doing what the state of California’s doing,” Newsom told a crowd of reporters and lawmakers last September as he signed new regulations on drilling, emissions and carbon removal.
Some industry observers worry that a portion of California’s policies, including Newsom’s anti-price gouging proposal, could squeeze California’s gasoline market.
“It’s politically positive, but you’ve got to realize that it likely will lead to further reductions in gasoline availability and take away incentives for companies to invest in long-term assets and equipment,” said James Sweeney, a professor of management science and engineering at Stanford.
Supporters of the penalty argue that it would help motorists by discouraging oil producers from raising the price at the pump in California out of line with the national average.
“This is a market that is heaven for these refiners,” said Jamie Court, president of Consumer Watchdog, a major proponent of the proposed penalty. “They’re not going to give it up if we cap their profits at a reasonable level.”
Environmentalists and members of the legislature’s Democratic supermajority argue that Newsom and state leaders are taking the steps necessary to reduce carbon emissions, curb climate change and ensure Californians aren’t getting unnecessarily squeezed at the pump. But not everybody sees it that way.
Tyson Bagley, a second-generation California oil worker, instead said it feels as though Newsom has “declared a war” on his industry.
“I have never seen an industry become so demonized by the state of California, elected officials and environmentalists,” said Bagley, United Steelworkers representative and health and safety worker at Phillips 66 Rodeo Refinery. “They look at us like public enemy number one and that is inaccurate.”
A century ago, California was the nation’s leading oil producer. But aging oil fields, stringent climate policies and a preference for cleaner natural gas over heavier California crude have diminished its output.
Over time, the state has become increasingly reliant on imported crude oil to produce its transportation fuel, with more than 70% coming from Alaska and foreign countries, according to data from the California Energy Commission. And with new efforts to impose further restrictions on the oil and gas industry and reduce air pollution in California communities, imports will only continue to grow.
Oil workers, in turn, will face layoffs and companies that serve in-state production may potentially be forced to shutter or reinvent themselves for green energy or construction sectors.
“I’m definitely not a climate change denier, but I’m in the business of protecting good jobs,” Bagley said. “They don’t need to pull the carpet out from under people’s feet when they’re working in an industry that people need to thrive and be successful.”
California’s isolated gas and diesel market poses challenges
California’s unique fuel landscape — an isolated market where all of the transportation fuel sold is refined locally by a handful of companies such as Phillips 66, Marathon Petroleum and PBF Energy — makes navigating the state’s transition to clean energy more challenging.
The conversion of the Phillips 66 Rodeo Refinery will mark a 6% reduction in California’s gasoline refining capacity, according to the company. That’s in addition to the 2020 closure of Marathon’s Martinez refinery, which processed even more crude and is also being converted to produce renewable diesel fuel.
Gasoline production in California is already falling faster than consumption, and the Phillips 66 refinery closure will only widen that gap.
Oil industry representatives argue that burdensome state regulations — which incentivize such conversions — are jeopardizing the state’s refining capacity, which could make Californians more vulnerable to gasoline supply shortages and price spikes.
Paul Davis, senior vice president of PBF Energy, cautioned that if the situation worsens, the state may find itself following in Australia’s footsteps and subsidizing operations at its last remaining oil refineries.
“We’re just flabbergasted by the tactics of the administration,” Davis said, adding that PBF representatives met with his administration twice a year ago to explain that the state was short gasoline. “They are just going to exacerbate what we still think is going to be a pretty dire supply system situation in the state very soon.”
Experts worry that a trend of such refinery closures — if not adequately timed to meet the changes in demand — could harm Californians without the means to purchase zero-emission vehicles.
“When you restrict supply and prices go up, the people who are hurt the most are low-income,” Borenstein said. “So it’s really inequitable, and that’s something we have to take seriously.”
Borenstein argues that instead of restricting the supply of gasoline, California’s transition to clean energy should focus more heavily on reducing the demand for it.
Another remedy, according to Amy Myers Jaffe, an energy research professor at NYU School of Professional Studies, is to invoke new regulations on the refining industry, requiring a minimum level of inventory on-site in case of outages or supply chain disruptions.
“The same way the state needs to make sure it’s putting in charging stations, we’re eventually going to need to go in the other direction, ensuring there are enough gasoline stations and petroleum,” she said.
A new life for California’s oldest refinery
On a recent sunny Tuesday, three large cranes towered over a construction site near the edge of the 1,100-acre Phillips 66 site in Rodeo. Elsewhere, steam billowed from tall heater stacks as trucks made their way in and out of the refinery grounds, mostly sandwiched between Highway 80 and the Carquinez Strait.
The cranes are helping to assemble a new facility that will play a central role in ensuring feedstocks are treated and cleaned before making their way through the rest of the refining process and out to gasoline stations across the state.
Inside the company’s administration building — sandwiched between the refinery’s many treatment plants, utilities and storage tanks — General Manager Jolie Rhinehart marveled at the progress.
“What we’ve done with the ‘Rodeo Renewed’ project is taken existing assets where we have great business, a great workforce and figure out a way to make that business more reliable now and in the future,” she said.
Rhinehart said there was “no better alternative” to reduce emissions for heavy-haul trucking and the emerging market of sustainable aviation fuel than renewable diesel. And as for concerns about supply issues, Rhinehart said she was confident her company will still be able to provide its stations with a “constant stream” of gasoline from refineries in Los Angeles and Washington or through imports.
“We’ve been here for 127 years and we aim to continue to operate here for the next 127 years,” she said. “We’re committed to it.”