Refiners Pin High Gas Prices On State Rules, Plant Closure; Industry Group Rebuffs claims That It is Manipulating Fuel Costs In California

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California's stubbornly high gasoline prices resulted from state regulations, trouble with imports and an outage at a major refinery, the oil refining industry told regulators Wednesday.

Speaking to the state Petroleum Market Advisory Committee for the first time since expensive California gasoline brought huge profits to oil refineries this year, the Western States Petroleum Assn. said the unusual gap between the state's average price for a gallon of regular gas and the national average involved matters out of the oil refinery industry's control.

"Clearly, there is a regulatory component for the situation that occurred this year," said Tupper Hull, vice president of the petroleum association. "As this committee looks at the continuing differential in prices, that's an area we would recommend you look at."

In addition, Skip York, of research firm Wood Mackenzie, said on behalf of the oil refining industry that as gas prices in California peaked in July, foreign and domestic sources had trouble delivering product to the state.

No tankers were available in the Gulf Coast to bring fuel to California. Better deals were available to sources such as India, as global demand for gasoline this year has soared.

"It’s not going to be economic," York said suppliers ultimately determined. "It was now more attractive for me to sell into a closer market than California."

Average gas prices in California typically run higher than the averages for the rest of the nation because of the unique blend of environmentally friendly gas that California mandates as well as because of state taxes and fees.

But this year, the gap was unusually wide, with the state average as much as 75 cents a gallon more the national average. In the Los Angeles area, the gap was even greater — as much as $1.50 a gallon higher.

Blame for much of the disparity this year fell on the outage at Exxon Mobil's Torrance refinery. Exxon reduced output at the facility to less than 20% after an explosion in February destroyed a pollution-control system.

Normally, Torrance accounts for 10% of the state's refined capacity and 20% of the capacity in Southern California.

Oil industry experts thought the plant would return to service by July, even if only with a temporary fix. Then it was expected that perhaps by year's end, Exxon would increase production.

Neither happened. And now the plant isn't expected to return to full capacity until February, just in time for Exxon to sell the facility to contracted buyer PBF Energy, a Parsippany, N.J.-based firm.

But even as inventories in California have increased from summer lows, gas prices in the L.A. region and across the state remain out of step with the rest of the country.

On Wednesday, the national average for a gallon of regular gas inched closer to a much anticipated price of $1.99 — lows not seen since 2009. The national average stood at $2.01, but in the L.A. area, the average price remained more than 70 cents more.

Jamie Court, president of the advocacy group Consumer Watchdog, rejected the oil industry's efforts to blame others for the high gas prices.

Court said the wide gap between California and the rest of the nation was the result of price manipulation by refiners, resulting in exorbitant profits.

According to Court's figures, oil refineries added $10 billion to the cost of gas in California this year or about $340 per driver.

"It's an astounding amount," Court told the petroleum committee. "We’ve seen Tesoro and Valero have the best quarters ever."

Although some suppliers might have thought the economics didn't make sense to deliver to California, committee members questioned Wednesday why some fuel tankers docked on the state's shores but left without unloading any product.

Gordon Schremp, a senior fuels analyst for the commission, acknowledged to the committee that a ship arrived and left, but added that there was not more than one such ship.

"Only one vessel stopped in California … and left and went down to Mexico," Schremp said. "There’s only one cargo that left."

Court told the committee he continues to believe there needs to be more transparency on the part of oil refineries and the possible manipulation of gasoline prices needs formal review.

"There is a pricing strategy, a deliberate pricing strategy that needs … an antitrust investigation," Court said.  

For more energy news, follow Ivan Penn on Twitter: @ivanlpenn

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