25/04/21
Calif. refinery resupply rule vote postponed
Houston, 21 April (Argus) — California regulators delayed a vote this week on
new refinery resupply rules meant to mitigate retail gasoline price spikes, but
refiners are still wary that the state is moving to make the most regulated
market in the US even tougher. The California Energy Commission (CEC) had
scheduled a vote on refinery resupply rules at its 24 April business meeting but
said the meeting is now postponed to allow for additional feedback and
consultation with stakeholders. The draft rules under consideration would
require refiners to submit resupply plans to the state at least 120 days before
any planned maintenance in September and October that would cause California
specification gasoline production to decline by 20,000 b/d for at least 21 days
or a total of more than 450,000 bl. Large spikes in California prices occurred
in the fall of 2022 and 2023. The commission is also planning rulemaking this
year on minimum inventory requirements to avoid price spikes in the event of
unplanned events, as well as possible rules on setting a refiner margin cap. The
timing of the new regulations is precarious, as two major refineries in the
state are planning to shut operations within a year. Independent refiner Valero
said on 16 April it is planning to shut or re-purpose its 145,000 b/d refinery
in Benicia, California and continues to evaluate strategic alternatives for its
other refinery in the state – the 85,000 b/d Wilmington facility. In addition,
Phillips 66 is planning to shut its 139,000 b/d Los Angeles refinery later this
year. Effort to stop gasoline price spikes The California rules stem from two
pieces of legislation signed by California governor Gavin Newsom known as AB
X2-1 and SB X1-2, part of a multi-year effort to mitigate price volatility in
the state, after some of the highest gasoline prices ever recorded in the fall
of 2022. US refiners have long opposed the new regulations seeing them as a
political attack on the industry, conflicting with other laws and the latest
example of an increasingly difficult regulatory environment in the state. The
CEC has conducted workshops to help draft the rules with the participation of
labor groups, the refining industry, environmental justice groups, community
advocates, and the public. The industry was largely represented by the Western
States Petroleum Association (WSPA). WSPA told the commission that the resupply
rule could conflict with existing statutory requirements for refiners not to
withhold fuel from the market and could result in market distortions and
undesirable price impacts. The rules could also make it hard for Arizona and
Nevada to secure needed supplies in the face of regulations expressly favoring
Californians' access to fuel, WSPA said. The rules could also force refiners to
use "uneconomic strategies" to secure non-spot market resupplies and additional
capital to guarantee inventories that could potentially lead to higher gasoline
prices, the group said. AB X2-1 forbids the CEC from adopting any regulation
"unless it finds that the likely benefits to consumers from avoiding price
volatility outweigh the potential costs to consumers." WSPA said it is concerned
that the CEC does not "have the facts in front of it to legitimately support
such a finding" with respect to imposing the resupply requirement. Under the
draft resupply rules, refiners must show they can secure sufficient supply to
ensure that lost gasoline production anticipated during the maintenance does not
adversely affect the California transportation fuels market. The plan must show
a resupply volume of at least 85pc of the anticipated lost gasoline production
during the maintenance and the resupply volumes must match the seasonal
specification of the lost production. The resupply plans could include imports
and each barrel of resupply obtained by imports will count as 1.3 barrels of
resupply. In addition, a plan that includes resupply through the purchase or
storage of gasoline blendstocks or gasoline blending components must explain how
such materials will result in an equivalent amount of California specification
gasoline. Non-compliance could carry a civil penalty of $100,000-$1mn per day.
Refineries with capacity under 30,000 b/d are exempt from the resupply
regulation. The rules would apply to five major refiners operating in the state
— Chevron, PBF Energy, Phillips 66, Valero and Marathon. Phillips 66, however,
will be closing its Los Angeles refinery by October and converted a refinery in
Rodeo, California, to renewable fuels in 2024. Since the 1980s, 29 refineries in
California have been shut or integrated with other refineries that eventually
closed or converted to renewable fuels production, according to CEC data. About
half of the shut refineries were smaller operations, producing less than 20,000
b/d. Looking at options The CEC caused a stir in August 2024 when it released
its Transportation Fuels Assessment, which examined policy options to mitigate
price spikes and transition away from fossil fuels including the state of
California buying and owning refineries. The assessment said this could range
from one refinery to all refineries in the state. But the document also
highlighted problems with such a plan, including the high cost of buying
refineries, significant legal issues, and the fact that the state has no
experience managing complex industrial processes. California is not currently
pursuing this option, state officials said. Another idea in the Transportation
Fuels Assessment involved state-owned product reserves in the north and south of
California to allow rapid deployment of fuel when needed. This could include "up
to several hundred thousand barrels." The CEC and the California Air Resources
Board are drafting a formal Transportation Fuels Transition Plan which will
serve as a road map to move away from fossil fuels. A draft of the report will
be released later this year. The Transportation Fuels Assessment and the
Transportation Fuels Transition Plan were mandated under SB X1-2. By Eunice
Bridges Send comments and request more information at feedback@argusmedia.com
Copyright © 2025. Argus Media group . All rights reserved.
