California’s Assembly passes gasoline reserve bill to guard against price spikes

California’s Assembly on Oct. 1 passed Governor Newsom’s proposal which will require the state’s oil refineries to keep gasoline reserves on hand to prevent price spikes, as the state seeks to manage gasoline supply during a transitional period which has reduced the number of refiners in a push toward cleaner transportation.

The bill, ABX 2-1, was approved by the assembly by a 44-17 vote, and is now headed to the State senate where it is expected to be passed by Oct. 11.

The bill says it will develop a process establishing a minimum level of reserves for each refiner, each refining region, each fuel, and each blending component. It will also develop a process for maximizing the use of existing storage infrastructure to be used to store the gasoline reserves.

It would also authorize the California Energy Commission (CEC) to require refiners to plan for resupply during refiner maintenance outages.

The bill also establishes the newly formed Department of Petroleum Market Oversight (DPMO) to lead in the implementation and enforcement of the bill.

Proponents of the bill have said that California’s gasoline price spikes often caused by refinery maintenances, planned and unplanned, reduces supply of California’s specific CARBOB gasoline grade and raises prices at the pump.

“Refinery outages are often used as an excuse to jack up price statewide based on a few spot market trades – even though the costs for most refiners do not go up. These price spikes are profit spikes for the oil industry,” said Tai Milder, head of the DPMO in an emailed statement.

“By bringing transparency to the industry, we discourage this kind of profiteering behavior. The Governor's special session legislation gives us critical tools to prevent price spikes," he added.

Bill expectations

During a Sept. 26 legislative hearing on the bill, expectations of how much it would impact price spikes was discussed, with one legislator putting it at a 7 -10 cents/gal savings for consumers.

However, it was also noted that the California Air Resources Board public hearing on the more stringent amendments to the Low Carbon Fuel Standard is scheduled for Nov. 8, 2024, which if adopted, could increase the price of gasoline by as much as 45 cents/gal.

California experienced a gasoline price spike in September and October of 2023, pushing CARBOB prices near or above historic $6/gal levels, according to the DPMO, which calculated this cost Californians up to $2.2 billion.

According to the California Energy Commission’s Weekly Fuel Watch, California’s CARBOB production for the week ending Sept. 20, 2024 was lower than it was in 2023, averaging 5.013 million barrels compared with California’s CARBOB production of 5.145 million barrels for the week ended Sept. 22, 2023. CARBOB inventories stood at 5.09 million barrels for the week ended Sept. 20, 2024, down from the 5.89 million barrels in the Sept. 22, 2023 week.

Despite lower September 2024 production and inventories, the price of Los Angeles CARBOB 84 in September 2024 averaged $2.35/gal, below the $3.67/gal average seen in September 2023, according to Platts, part of S&P Global Commodity Insights, price assessments.

Part of the explanation for September 2024’s lower CARBOB price compared with September 2023’s higher CARBOB price can be put on the price of crude, which accounts for about 50% of the cost of gasoline, and its price is determined by a global market.

Crude prices were significantly higher in 2023 than in 2024 with Dated Brent averaging $74.33 in September 2024, almost $20/b cheaper than it was in September 2023 when it averaged $94.00/b, according to Platts assessments.

Higher crude prices also impacted other regions in 2023, with US Gulf Coast CBOB 87 averaging $2.56/gal in September 2023, compared with the $1.90/gal in September 2024.

CEC to govern refinery maintenance

The bill also says the CEC “in adopting regulations governing the timing of turnaround and maintenance, to include a provision establishing that the health and safety of employees and the public are the primary consideration, and that any harm to employees and local communities from changes to this timing is to be minimized.”

During the Sept. 26 California legislative committee hearing on petroleum and gas supply, the issue of worker safety was brought up, with a multitude of union workers showing up to voice their opposition to the bill.

On record as opposing the bill include trade organizations such as California’s Building and Construction Trades Council as well as unions representing refinery workers including operating engineers, boilermakers and ironworkers.

The non-profit Western States Petroleum Association, the oldest petroleum trade association in the country, has also come out against the bill, saying in an October 1 statement, “the notion of mandating refineries to store fuel supplies may seem like a simple fix to price spikes, but the reality is far more complex.”

”This theory of cost savings is just that—a theory. Without a deep understanding of the complexities of refinery operations, policymakers are gambling with consumers’ wallets. We, as an industry, are ready to roll up our sleeves and address the root causes of California’s volatile energy market, which has been shaped by decades of policies,” said WSPA president and CEO Catherine Reheis-Boyd.

“We call on legislators to do the same. Californians deserve solutions grounded in reality, not rushed ideas pushed through during a special session. This bill lacks the time, detail, and diligence required to truly address the problem,” she added.