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California gasoline consumption to surpass
refinery production by 2010
STEPHEN GAUT
Staff Writer
The California Energy Commission predicts that by 2020, statewide gasoline
consumption will be 40 percent higher than at current levels, and that California drivers
could consume more gasoline than the state's refineries can produce by 2010.
California's refineries are already operating at near-capacity levels to meet demand.
"At times, they (the refineries) have produced one million barrels (42 million gallons) of gasoline a day, but they cannot run
at that level every day," said Gordon Schremp, commission analyst. "The refineries have been getting more gasoline from the
same facilities; they have been tinkering and de-bottlenecking, but that has its limits."
The commission predicts sudden price increases, as well as sustained higher prices, unless "major changes" are made in the
state's gasoline refinery system. California and North County drivers pay $1.66 per gallon for regular gasoline, prices that
are already among the nations highest.
In a report released earlier this month, the commission suggested long-term solutions to the problem other than simply
building more refineries. Among them:
n Increasing the fuel economy of vehicles,
n Increasing the use of public transportation, and
n Making land-use decisions that encourage the construction of new housing units closer to job sites to avoid long commutes.
While it is generally agreed that Californians consume too much gasoline, what to do about it does not call out obvious
solutions; putting significant consumption reduction measures in place requires foresight and discipline from both politicians
and car-loving voters that is rare in California and most other states.
Rising consumption
During the period from 1980 to 1997, California's population grew by 1.9 percent a year.
The number of vehicles on the road grew by the same percentage, but miles traveled increased 3.4 percent per year. Fuel
economy in cars improved at the same time, from about 13 miles per gallon to 21 miles per gallon. The net effect was that
gasoline consumption increased by 1.7 percent per year.
In spite of the increased consumption, the state's refinery capacity declined. The commission cited more stringent
environmental regulations and the high cost of converting refineries to California's cleaner burning gasoline as reasons for
the demise of many smaller refineries. From 1985 to 1995, the commission, whose job it is to keep track of refineries,
reported that refinery capacity in California declined by 20 percent.
California drivers consume 14 billion gallons of gasoline per year, 85 percent of the total state refinery capacity of about 16.5
billion gallons. By 2010, the commission projects that Californians will consume 17 billion gallons, making consumption by
that point higher than the state's total capacity. Thus, unless new refineries are built or existing refineries expanded, by 2010
California will be forced to import refined gasoline via pipeline or ship.
But some industry veterans say that California's refineries will be able to respond if gasoline demand begins to consistently
outpace supply.
"If the demand is there, it will be met," said Tosco spokesman Paul Oves; Tosco is one the state's biggest refiners that sells
gasoline through 76 and Circle K outlets. "It (supply and demand) is something we look at everyday; if we see a shortage
coming, we can re-evaluate our projects."
No refineries in works
A few large oil companies dominate both refining and retail operations in California. This year, there was a new entrant into
the market: Valero, a Texas-based refiner, purchased Exxon's refinery in Benicia in May, giving that company control of 7
percent of the state's refining capacity of about 2 million barrels of crude oil per day.
In July, Ultramar Diamond Shamrock purchased Tosco's refinery in Martinez; Ultramar already owns a refinery in
Wilmington and controls 16 percent of capacity following the purchase. Following the sale, Tosco controls 13 percent of
refining capacity; Chevron controls 26 percent, Shell-Texaco controls 16 percent. British Petroleum Amoco, which
purchased Atlantic Richfield Co. in April, controls 12 percent.
Commission analyst Tom Glaviano said that there are no refineries currently under construction in California, and none in the
permitting or "conceptual" phase. But some existing refineries are expanding: officials with Tosco announced earlier this
month that they would re-tool and expand two of their refineries in California in order to meet new federal clean air standards
scheduled to go into effect in 2003. The modifications at the two plants would combine to increase Tosco's California
capacity by 30,000 barrels per day
Difficult process
As an example of the difficulties in building a new refinery or expanding capacity can be found in Cenco Refining, a refinery
in Santa Fe Springs near Los Angeles. The small refinery ---- with a capacity of 57,000 barrels of crude oil per day ---- is
currently not refining crude oil. The company needs to modify its plant and obtain permits to be able to produce federally
mandated "phase two" cleaner burning gas, and is currently trying to find investors to finance the $140 million needed for
various upgrades.
Christman said that the refinery filed its application with the South Coast Air Quality Management District in April 1999, and
that it has yet to receive its final permit; Christman said the slow permitting process has made many potential investors balk.
"They (the management district) were looking for a level of detail that we weren't anticipating; it was radically different from
what we had seen in the past," said Christman of the permitting process.
Christman blamed the slow permitting process on the high scrutiny given to big industrial facilities in California, scrutiny that
is caused by public opposition to big industrial projects.
"We are under the microscope; the attitude in California is NIMBY (not in my back yard) when it comes to industry,"
Christman said.
Some opposition
Christman said that there has been some community opposition to the plant expansion project, despite the fact that the
refinery, which began operations in 1936, has been in the area longer than most of complaining community residents.
Schremp said that reluctance of investors to fund the Cenco expansion is evidence of how difficult it may be to expand
refinery capacity in California.
"There it (the Cenco refinery) sits, with its equipment already in place on an approved site, and no one has stepped forward
and made a commitment to finance it (the expansion)," said Schremp. "If no one will step forward with the money to modify
an existing plant, who would someone step forward with the money to build a brand new facility from scratch ?"
Returns are small
Schremp said the returns for refiners in recent years have been small, and that most of the profits made in the oil business are
those companies (such as Chevron and Exxon) that own their own oil fields and thus are refining their own crude. Schremp
said that the low profit margins of the independent refiners has made finding investors for new refineries or expansions
difficult.
Christman said that the cost to build a refinery of Cenco's size is about $900 million. Cenco's capacity is only a fraction of
that of the state's big refineries: Chevron's two California refineries both have capacities over 200,000 barrels per day.
Oves also doubts whether any new refineries will be built in the U.S. over the next ten years, and he was not aware of any
large refineries that were put into operation in the U.S. in the last 20 years.
"In today's environment, a new refinery of the size needed to compete would cost in the $1-$2 billion range," said Oves. "I
doubt you could justify the economics (to build a new plant) or get the permitting done."
The problem with imports
The problem with importing gasoline by any means is that there are only a handful of refineries world wide that can produce
gasoline to meet California's strict clean-air standards, and that transporting gasoline via ship from the Texas Gulf Coast, the
Caribbean, or Norway means much higher costs at the pump.
"Importing gasoline is not necessarily a bad thing," said Glaviano. "About one half of the states (in the U.S.) import 100
percent of their gasoline; in some cases, it may be more cost efficient to import gasoline rather than to build new refineries."
Oves said that one problem with shipping in gasoline to California in that the journey from the Texas Gulf Coast takes about
three weeks.
"That is a large amount of risk; by the time the ship makes it to the west coast the prices could have dropped so that they can
no longer pay for the trip; there is a degree of reluctance to put product in the water," said Oves.
Oves said that if California refineries routinely could not produce enough gasoline to meet the states needs at some point in
the future, then regular shipments from the Texas Gulf could be made at little risk as prices would be predictable and thus the
state's needs could be met.
In the long term, pipelines are a cheaper alternative to shipping gasoline. But officials with Kinder Morgan, a pipeline
construction company, told the attorney general's gasoline task force in March that constructing a pipeline to bring gasoline
from the Texas Gulf Coast to California would cost about $1 million per mile and could take five to ten years to complete.
Glaviano said that a shortage of gasoline on the west coast and sustained high gasoline prices will eventually make refineries
a more attractive investment and raising capital for them far easier.
"If there is advantage to building new refineries, they will be built; permits are permits, you need to get them to run any
business, it is really not that burdensome," said Glaviano. "The free market will take care of the problem, the oil companies
can move heaven and earth."
Stephen Gaut can be reached at (760) 740-5412 or by e-mail at sgaut@nctimes.com.
8/20/00 |
