A consumer group on Monday accused America’s two largest oil companies — Exxon Mobil Corp. and Chevron Corp. — of deliberately starving California’s gasoline market of supplies last year in a bid to push up prices.
And according to Consumer Watchdog, the effort worked.
Several times last year, gasoline in California cost $1 more per gallon than it did in the rest of the United States. Although California typically has some of America’s priciest gas, the difference is usually closer to 30 or 35 cents.
Both companies denied the group’s accusations.
An explosion last February crippled a large Exxon refinery in Los Angeles County, prompting a sudden jump in prices. But Exxon largely refrained from importing shipments of gasoline to make up for the Torrance refinery’s lost production, even as prices rose. Instead, the amount of gas Exxon imported into California for the rest of 2015 equaled just three days of the damaged refinery’s normal output, according to a report Consumer Watchdog issued Monday.
Exxon owns an American-flagged ship capable of bringing gasoline from Gulf Coast refineries to California. Rather than use it to ease California’s supply crunch, the company kept the tanker in Singapore, according to the report.
Chevron, meanwhile, exported gasoline from California, including during June and July, when pump prices hit their peak for the year. Consumer Watchdog tracked imports and exports through records kept by California’s State Lands Commission.
‘You dry out the market’
The report does not argue that Exxon and Chevron conspired with each other. But each company’s actions kept gasoline supplies short in California and boosted prices, according to the report. Although Exxon bought gasoline from other California refineries to make up for the lost production in Torrance, the lack of imports helped keep the state’s gas prices high.
“You dry out the market,” said Jamie Court, Consumer Watchdog’s president. “While Exxon was not bringing it in, Chevron was pushing it out.”
An Exxon spokesman denied the group’s accusations Monday without addressing any in specific.
“ExxonMobil rejects these allegations and is committed to the highest standards of business conduct, has operated responsibly and in strict compliance with all laws,” said spokesman Todd Spitler.
California’s gasoline market — cut off from the rest of the country by regulations and geography — has a long history of sudden price spikes.
State’s unique gas blends
But analysts have had a hard time explaining why the state’s gasoline prices have stayed so far above the national average for the past year. The Torrance refinery explosion, after all, struck almost a year ago, on Feb. 18. California’s average price for a gallon of regular now stands at $2.51, according to GasBuddy.com. The national average is $1.73.
California even set up a panel of experts, the Petroleum Market Advisory Committee, to root out causes for the elevated prices. Consumer Watchdog presented its report Monday at the committee’s latest meeting.
California uses its own unique, pollution-fighting blends of gasoline not sold in other states. And no pipelines connect California to the nation’s largest collection of refineries, on the Gulf Coast. As a result, analysts often refer to the state’s gasoline market as an island. Most of the fuel used here is made by 14 refineries located within California. If mechanical problems strike two or more refineries at once, prices jump. Replacement supplies must come by ship.
Higher taxes on fuel
The state also boasts some of America’s highest gasoline taxes, which when combined with the federal excise tax add about 59 cents to the cost of each gallon. (The national average is 48 cents, according to the American Petroleum Institute.) Two California programs to fight climate change — the low carbon fuel standard and the state’s cap-and-trade system — tack on an additional 15 cents.
Consumer Watchdog’s report does contain gaps. For example, the import and export records kept by the Lands Commission do not tell whether any of the gasoline shipped abroad by Chevron was California-grade, meant primarily to be sold in the state. While California’s refineries primarily serve the local market, they also make gasoline for other states and — to a lesser extent — other countries.
“The production of California-grade gasoline is a priority, and California-grade gasoline is rarely if ever exported outside the state,” said Chevron spokesman Kurt Glaubitz. “California refineries have always produced a variety of products, some of which are exported in the ordinary course of business and are subject to long-term contractual obligations. Changing refinery operations to respond to unexpected conditions to produce fewer exports takes lead time and must be accomplished within the confines of pre-existing contractual commitments.”
The report’s central argument, that Exxon kept supplies short to push up the price, drew skepticism Monday from Severin Borenstein, a UC Berkeley energy economist who chairs the Market Advisory Committee. Because Exxon was buying replacement supplies from other California refineries, rather than importing gasoline from some of its own refineries elsewhere, high prices would have hurt the company, Borenstein said.
“Can you tell us why you think Exxon would choose to buy in a very expensive spot (wholesale) market rather than supplying itself?” he asked Court during the committee meeting. “It’s interesting, but that part of the story doesn’t make much economic sense.”
Seeing profit with purchases
Exxon would still profit, Court said, if the price the company paid other refineries was substantially below the price Exxon charged gas station owners for the fuel they sell to consumers. Oil companies cannot tell independently owned gas stations what to charge drivers, but they can set the wholesale prices that station owners must pay.
“Even buying from the other refiners, you can still still make a good profit, if you’ve got a lot of control over that … price,” Court said.
David R. Baker is a San Francisco Chronicle staff writer. E-mail: [email protected] Twitter: @DavidBakerSF