Curing California motor fuel price spikes could be worse than supply problems causing them, environmental and oil industry representatives warned a state advisory group yesterday.
Proposals to waive fuel specifications or require stockpiles for supply shortfalls could risk the health of California residents and the state's fuel market, according to presentations made to the California Energy Commission's Petroleum Market Advisory Committee.
"The more intervention that goes into a marketplace, the messier it gets," Vitol clean products trader Brad Lucas said.
The advisory group, which studies recent price volatility for the California Energy Commission, was studying whether waiving certain fuel specification requirements, requiring fuel sellers to maintain minimum fuel inventories or having the state guarantee purchases of imports would help alleviate gasoline price increases the state has seen over the past four years.
Members ended the meeting less interested in mandating minimum storage volumes and more concerned about practical considerations involved in waiving fuel specifications.
The state uses its own gasoline blend, CARBOB, to meet federal and local air requirements. Few refiners globally produce the fuel, limiting options to supply the single-largest US fuel market when one of the in-state producers of the fuel goes down unexpectedly.
Los Angeles CARBOB prices spiked last July as the state lost out to higher-priced markets vying for the import barrels the region needed to replace lost production at then-ExxonMobil's 155,000 b/d refinery in Torrance, California. San Francisco prices shot higher in 2012 after a fire at Chevron's 250,000 b/d refinery in Richmond.
But proposals could cause prices to react in unexpected ways, traders, pipeline operators, and industry, environmental and consumer groups warned the council.
Allowing the use of lower-quality gasoline to manage prices could pose health risks and require slowly-won federal approval. It could then take weeks to move the lower specification fuel out of the system, and interfere with regulating off-specification gasoline found at low-volume fuel retailers.
Requiring minimum stockpiles would tie up storage tanks already at a premium in the state and increase costs to customers, Kinder Morgan and the California Independent Oil Marketers Association (CIOMA) warned.
"There is a lot of potential for unintended consequences from these proposals," CIOMA spokesman Jay McKeeman said.
Such requirements could also cause an already shrinking pool of traders to drop out, cutting liquidity and raising prices, Lucas said.
California's plans to move to alternative fuels may also limit any potential redress. The effort complicates any approvals or interest in investing in new infrastructure to help ease supply shortages in the state.
"We need to make the market work during this transition period, and the transition period will be decades," council chairman Severin Borenstein said.
