Those LA Fires Are Hardly Newsom's Only Failure: He Is Forcing Up Gas Prices While Blaming Refiners for Them

Guest Post from the Institute for Energy Research.

California Governor Gavin Newsom claims oil companies are price gouging, which is why gasoline prices are well over $1 more than the national average price in his state. As of Jan. 16, 2025, Californians pay an average of $4.416 a gallon for regulated unleaded gasoline, while the nation averages $3.103 a gallon.

“It's all their fault!”

To prove his assertion, in 2022, Newsom signed SB-1322, the Oil Refinery Cost Disclosure Act, requiring refiners in California to report detailed monthly data on their gasoline profit margins. Refiners had to disclose the cost of the oil purchased, the wholesale price of the gasoline sold, and the gross and net profits earned per gallon of refined gasoline.

The data that the California Energy Commission collected found that oil refiners often operate on razor-thin or even negative profit margins. The real reason that Californians pay the highest prices in the nation for gasoline is because of the state’s climate-justified taxes, fees, regulations, and special gasoline blends no other state requires.

California began reporting net margins in June 2023. According to Robert Rapier’s article in Oil Price, between June 2023 and April 2024, the average net profit margin was just $0.09 per gallon. Over that 11-month period, refiners posted a positive net margin in only six months.

According to CBS8, California’s special summer and winter gas blends and the highest gas taxes in the country add about $1.40 to every gallon of gas sold in the state, which is about the same break-out that the California Energy Commission provides in its data summary. For every gallon of gas in California, consumers pay:

• 54 cents in state excise tax: among the highest in the nation

• 18.4 cents in federal excise tax

• 23 cents for California’s cap-and-trade program to lower greenhouse gas emissions

• 18 cents for the state’s low-carbon fuel programs

• 2 cents for underground gas storage fees

• An average of 3.7% in state and local sales taxes

According to Rapier, the problem was that the price gouging argument supporters interpreted gross margins to be equal to net refinery profits. The California Energy Commission defines the Gross Gasoline Refining Margin as the wholesale gasoline price minus the cost of crude oil. The net refining margin, however, should subtract the refinery’s operating costs, which averaged just over $1 per gallon during the reporting period.

Despite this data, the California Energy Commission released a report on August 1, 2024, announcing proposed government controls of its petroleum industry, supposedly to combat future energy price surges. According to the report, as demand for petroleum decreases due to California’s climate laws and regulations, some of California’s oil refineries are expected to close, increasing the pricing power of the state’s remaining refineries, potentially leading to higher gasoline prices.

In reality, California’s policies are forcing the closure of refineries, reducing supplies, which increases prices. To address the alleged concern, various government interventions were proposed, including increased regulation of private refineries, the creation of state-owned refineries, and increased petroleum imports. The Commission called for the State of California to purchase and own refineries, ranging from “one refinery to all refineries in the state.”

On October 14, 2024, Governor Newsom enacted a new law requiring oil refiners to maintain minimum fuel stockpiles and granting the Energy Commission the authority to oversee plans to prevent fuel shortages during maintenance periods. The law imposes penalties on refiners that fail to either maintain adequate inventories or provide satisfactory plans for resupply. To comply, refiners will need to invest significantly in storage infrastructure, as modern gasoline blends and mandated biofuels have a limited shelf life.

The very next day, Phillips 66 revealed its plans to close its large refinery in the Los Angeles area by the end of 2025, which is expected to have a negative impact on California’s fuel supply. The refinery produces 85,000 barrels of gasoline and 65,000 barrels of diesel and jet fuel daily and employs around 600 workers and 300 contractors, accounting for roughly 8% of the state’s refining capacity.

As a result of this new law and other regulatory changes—including a new carbon credit system and higher taxes tied to the state’s price index—California’s gasoline prices are projected to rise further this year. After the November elections, the California Air Resources Board (CARB), which is largely appointed by the governor, updated the state’s Low Carbon Fuel Standard (LCFS), requiring producers of hydrocarbon-based fuels to purchase additional credits from non-hydrocarbon fuel producers.

Under Newsom’s administration, oil production in California has declined by about 35% since January 2019, in contrast to national trends. Additionally, he signed a bill allowing local governments to block the development of new oil wells. These actions are part of the state’s broader strategy to phase out gasoline-powered vehicles and internal combustion engines by 2035. The goal seems to be to push oil and gas prices higher, forcing consumers to transition to electric vehicles.

Conclusion

California politicians and regulators are producing policies and regulations that are reducing oil and gasoline production, costing Californians more to fill up their vehicles, and blaming refiners for supposedly price gouging. The data, however, does not support the premise, revealing that oil refiners often operate on razor-thin or even negative profit margins.

California will need to import petroleum fuels produced elsewhere—countries with far less environmental standards than the United States—if it does not produce its own gasoline.

While the United States has been closing refineries, China has been building them and most likely would be happy to supply California with its boutique fuel at a cost. If that were to happen, California would become dependent on a country that uses slave labor and has lax environmental standards.

China does not have the vast oil resources of the United States and instead is producing low-cost electric vehicles, which have become popular in China and which the country and California want U.S. consumers to purchase.

#California #Newsom #GasPrices #CARB #Refineries