Torrance Refinery Explosion Cost California Drivers $2.4 Billion In High Pump Prices, Study Says

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The February 2015 explosion that shuttered the ExxonMobil plant in Torrance was the costliest disruption at a California refinery in the past 16 years, with motorists paying at least $2.4 billion in higher pump prices in the following six months, according to a recent RAND study.

Soaring prices stemming from the lost gasoline supply sucked a staggering $6.9 billion from the California economy in the first six months after the explosion alone.

But the total economic loss is likely more than double that figure, RAND researchers noted.

Fifteen months after the blast in a pollution-control device, ExxonMobil this weekend is scheduled to begin restarting the refinery, which normally produces 155,000 barrels of gasoline a day, or about 10 percent of the total refined product in California.

The economic losses tied to the Torrance blast were part of a larger RAND cost-benefit analysis of proposed California oil and gas refinery safety regulations.

Those recommendations were made by a state task force in the wake of the 2012 fire at the Chevron refinery in Richmond that forced 15,000 people to seek medical treatment. The RAND study was sponsored by the state as part of a mandatory regulatory assessment conducted when proposed regulations have an economic impact exceeding $50 million.

The 125-page report, issued in March, concluded that stricter regulations are a cost-effective method to increase safety at the state’s dozen refineries and reduce the number of major incidents that cause price spikes at the pump and other economic losses.

“The new process safety management regulations could improve safety at California refineries, which would, in turn, result in fewer major process incidents and fewer releases of hazardous materials from refineries,” the study said.

“Because the number of major refinery incidents might decline under the proposed regulations, the regulations could provide safety and health benefits to the public in nearby communities and might provide other economic benefits,” the report added.

A U.S. Chemical Safety Board report on the Torrance explosion, released earlier this year, noted that 333,000 residents, 71 schools and eight hospitals are within a three-mile radius of the refinery.

The February blast, which state and federal investigators have blamed on ExxonMobil’s deliberate failure to fix equipment, almost caused a catastrophic release of highly toxic hydrofluoric acid that could have killed or injured thousands, CSB investigators said.

The study by the nonprofit Santa Monica think tank also found that as consumers shelled out more money in the wake of the Torrance plant shutdown, California refiners were benefiting financially from the disruption.

On average, a major refinery accident costs refiners in the state an average of $220 million, the report said.

“The supply shortage that the ExxonMobil Torrance Refinery incident caused resulted in a price increase of about 40 cents a gallon in the state,” the study concluded. “This resulted in a windfall profit on the order of $2.4 billion to the refiners that maintained or increased production at this time.

“Thus, although the losses to the refiner having the incident were significant, the gains for the rest of the industry were more than four times as great as those losses,” the report added.

“It’s certainly ironic that refinery accidents make oil companies richer,” said Jeff Ruch, executive director of Public Employees for Environmental Responsibility. “It also underlines the economic incentive to be safer while saving motorists needless costs.

“It could also save the industry a lot of money,” he added. “They’ve been fighting against it.”

Whether ExxonMobil’s profits suffered from the blast is unclear.

The company’s annual profit was sliced in half in 2016 compared with the previous year, largely because of the global oil glut. But the company still reported 2015 earnings of $16.2 billion.

The RAND study estimated that the economic loss from a major refinery incident — just three have occurred in California in the past 16 years — averaged $800 million a year.

Meanwhile, the cost of implementing the regulations is likely about $58 million a year.

The RAND study presumes oil companies would pass the increased costs of the new regulations onto consumers. The cost to drivers was estimated at 68 cents to $6.20 a year, with an average anticipated cost of just $2.

“The ExxonMobil refinery is the poster child for why we need these new refinery safety protocols just from the potential of saving money, let alone in communities and lives,” said Jamie Court, president of Santa Monica-based nonprofit group Consumer Watchdog. “The cost of implementing these regulations is nothing compared to the cost of one refinery outage in Torrance last year.

“The only good news to come out of ExxonMobil’s Torrance shutdown is it clearly makes the case we need to step up regulations,” he added. “Those regulations are unbelievably cost-effective given the billions extra the economy and the consumer have paid for the failure of ExxonMobil to maintain that refinery.”

Former Chemical Safety Board Chairman Rafael Moure-Eraso, who resigned last year after allegations of mismanagement at the agency, said Thursday that if the new California regulations had been in place in 2015, the blast at the Torrance refinery would not have occurred.

Moure-Eraso championed these sorts of regulations at the federal level, too, which is why some critics believe he became an industry target. But he and Rusch believe the strength of the industry lobby, combined with a lack of political will, means that’s unlikely to happen despite a string of recent accidents at the nation’s aging refineries.

“Corporate special interests have a lot more influence in Washington than they seem to do in California,” Moure-Eraso said. “They have a more responsive political system than at the federal level.”

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