Consumer Watchdog Asks US Attorneys To Investigate “Refinery Maintenance” Issues Driving CA Gas Price Spikes

Santa Monica, CA—Consumer Watchdog called on California’s United States Attorneys to investigate the unprecedented refinery outages driving California gasoline price spikes. In a letter, the nonprofit group presented circumstantial evidence that oil refiners may be manipulating gasoline supplies through shutdowns to drive pump prices and profits higher.

“Since the beginning of February, California’s fourteen oil refineries have suffered ten serious slowdowns or shutdowns, many due to questionable causes or timing,” Consumer Watchdog’s letter said. “The timing of these overlapping outages raises questions about their true necessity, and about whether some refinery capacity may have been taken off line in order to drive up prices and profits for oil refiners at a time when some of their crude operations have been yielding less profits.”

“Experts have publicly and privately stated that they have never seen so many refineries down for planned and unplanned maintenance at this time of the year.”

Read the letter at http://consumerwatchdog.org/resources/ltrusattorneyspricemanip5-21-15ltrhd2_1.pdf

Consumer Watchdog documented the pattern of suspicious outages using information from industry sources, print media and trade publications, and from the Oil Price Information Service.

According to the watchdog group’s analysis, Californians paid $2.4 billion more for their gasoline than drivers nationally between February and April based on the gap in pump prices. Southern California gas now costs $1.30 more than the nationwide average—the widest gap ever recorded.

“This is the only industry in America that profits more when its factories repeatedly break down, or are taken down for ‘maintenance,’” the letter continued. “Since four oil refiners control 78% of the gasoline market, such an oligopoly can easily withhold needed products to drive up prices.”

Oil refiners in California credited large first quarter profits to refinery problems and tight supply. “Their company executives uniformly reported to investors on recent investor calls that the ‘maintenance’ problems and other ‘disruptions’ at their refineries have been a huge boon for the companies at a time when crude oil prices are at historic lows,” the letter said.

The letter quoted several executives:

•Jeff Gustavson, General Manager at Chevron: “Margins increased earnings by $435 million driven by unplanned industry downtime and tight product supply on the US West Coast.”

•Greg Maxwell, CFO of Philips 66: “First quarter gasoline cracks [difference between costs to make gasoline versus its wholesale price] for the Western Pacific region were $20.21 per barrel compared with $7.46 last quarter, resulting in record earnings for the region.”

•Greg Goff, CEO, Tesoro: “In California, crack spreads have improved related to the unplanned and planned refinery maintenance activities.”

“When oil refiner profits are driven by planned and unplanned maintenance, and refiners determine the maintenance schedules, an investigation is warranted,” the letter stated.

California keeps only about 10 days of inventories on hand, compared to 18 days nationally. The combination of short supplies and refinery outages allow a handful of companies to make big profits at the expense of consumers. Notoriously secretive refiners do not publicly report outages and slowdowns and even the California Energy Commission is not informed of planned and unplanned outages. Only unplanned outages that involve toxic emissions are reported to state authorities.

Consumer Watchdog also pointed out to the US Attorneys, “The slowdowns and shutdowns also come at a time when the refiners’ trade association, the Western States Petroleum Association (WSPA), had a tacit agreement among its members to work together politically to undermine new global warming limits in California by arguing that the measures raised gasoline prices.

“An internal WSPA presentation made public in November by Bloomberg showed the companies intended to finance surrogate groups that would argue greater greenhouse gas emission limits in California under the new cap-and-trade program drove gasoline prices up 76 cents. With gas prices dropping precipitously in January, as the cap and trade program took effect, and following a historic drop in crude oil prices, the strategy could not be implemented. At state senate hearings in March, the oil marketers testified that cap and trade had no impact at the pump.  Nonetheless oil refiners have blamed recent gas price spikes on the cap and trade program, raising the question of a political motive for the oil refiners to throttle back their refineries and drive up gas prices.”

Citing the lack of state action to date, Consumer Watchdog urged the US Attorneys to investigate. 

“The political power of the oil industry over state officials, given the industries’ huge political war chest and lobbying operations, requires an independent, outside investigation by the US attorneys’ offices,” the letter noted. “Californians deserve real answers about whether oil refiners have created artificial shortages and scarcity to drive up gasoline prices.”

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