California has become increasingly dependent on fuel imports following the closure of two large refineries, making it particularly vulnerable to supply shortages related to the war in the Middle East.
Refiner Phillips 66 and midstream giant Kinder Morgan are developing a midstream project that could provide some relief, but the plan will take years. In the meantime, the state's gasoline and jet fuel prices have reached multi-year highs, boosted by supply concerns, even as imports have soared.
California has lost about 17pc of its refining capacity in the past seven months following the closure of Phillips 66's 139,000 b/d Los Angeles and Valero's 145,000 b/d Benicia complexes.
Total imports of refined products to the western US rose to nearly 345,000 b/d on 1 January-10 April, up by 38pc from the same period last year, according to weekly data estimates from the Energy Information Administration. California gasoline imports rose to 122,000 b/d in February, as the Benicia plant started to shut down, according to trade analytics platform Kpler. That was up from 28,000 b/d in January and 8,000 b/d higher on the same month last year. Import dependence persisted in March, with gasoline arrivals of 142,000 b/d, nearly three times higher than a year earlier.
Tightening regional supply and higher underlying Nymex Rbob values as a result of the war in the Middle East pushed prices higher.
Los Angeles regular Carbob differentials rose to a five-month high of 60¢/USG on 21 April, up by 41.25¢/USG from pre-war levels. San Francisco regular Carbob differentials rose to 66¢/USG on 21 April, up by 41.5¢/USG from before the war began. Outright regular Carbob prices on 21 April were $3.81/USG in Los Angeles and $3.79/USG in San Francisco, up from $2.47/USG and $2.53/USG, respectively, on 27 February, before the war started.
At the same time, in-state Carbob production dipped in mid-April, further exacerbating supply constraints. California refiners cut the production of Carbob gasoline by 13pc to 570,000 b/d, the lowest in at least five years, as their priority shifted to producing in-state Carb diesel, according to the latest California Energy Commission data. Prices are likely to remain supported in the near term as geopolitical tensions have started to constrain inflows.
Jet fuel woes
Jet fuel prices on the US west coast reached an all-time high of $4.92/USG on 23 April, up from a previous high of $4.81/USG on 20 March, according to Argus data. California jet fuel stocks were at a more than two-year low as of 10 April, recent state data show.
And South Korea — the state's main supplier of jet fuel — relies heavily on the Middle East for its crude and naphtha supplies and has taken measures to maintain local inventories, including export caps on refined products. Californian jet fuel arrivals from South Korea have averaged about 38,000 b/d in April, roughly even with March but down from 46,000 b/d, on average, in January-February, Vortexa data show.
In the longer term, the Phillips 66-Kinder Morgan project, dubbed Western Gateway, could curb the need for fuel imports. The companies say they are advancing the project after securing shipper commitments. The plan includes a new 200,000 b/d pipeline from Borger, Texas, to Phoenix, Arizona, combined with the reversal of Kinder Morgan's existing SFPP pipeline from Colton, California, to Phoenix, Arizona. It includes destinations west of Colton, allowing access to Los Angeles markets. The companies expect the project to start up in 2029.
