What’s driving Valley’s gas prices higher?

By Bethany Cloug | August 21, 2009
CMTA Daily Update

Everyone knows gas is more expensive in California than elsewhere in the country — but lately, drivers here are paying even more. In Fresno, drivers pay 44 cents per gallon more than the national average.

Why so much? Taxes, the state’s cleaner-burning blend of gasoline, and a lack of fuel storage and sources that have turned California into a "fuel island," according to a new report.

And recent problems at several of the state’s refineries have further squeezed the supply, according to the California Energy Commission.

Nationally, the average price of a gallon of gasoline was $2.62 Thursday. In Fresno, it was nearly $3.07, and the average cost in the Visalia-Tulare-Porterville area was $3.09.

California drivers generally pay about 30 cents more per gallon for their gas, but lately are paying more than 40 cents more.

A new nonprofit group called Fueling California has taken a fresh look at well-known underlying factors. The group speaks on behalf of businesses such as UPS, United Airlines and Harris Ranch that use a lot of fuel.

"It’s especially important right now that we think about the economic impact of everything that we do," said Wallace Walrod, who coordinated research for the report. "Higher gas prices have an effect on economic growth."

Walrod is vice president of research at the Orange County Business Council, which collaborated with professors and economists from California State University and the University of California to produce the report. The report pulls from existing studies — many by the California Energy Commission.

One factor is taxes.

State gas taxes are 18 cents a gallon, second highest — after New York state — in the nation, according to Fueling California.

Another reason California gas is expensive: the blend. California law mandates a blend of gas here that’s intended to help meet federal air-quality standards. This has resulted in cleaner air, but the ingredients are more expensive, said California Energy Commission spokeswoman Susanne Garfield.

The Fueling California report attributes between 5 and 15 cents of California’s higher per-gallon price to the blend itself.

And because California’s gas is so different, most of it must be made at refineries within the state. Thirteen refineries supply the state with its gasoline, Garfield said. Only a handful of refineries outside California — one as far away as Finland — make the blend, so it’s impractical to import finished gasoline, she said.

The report describes California as a "fuel island." The state imports 61% of crude oil needed to make its gasoline. Since no pipelines pump crude oil into California, it must be imported by tanker ships — a process that takes 10 days from Alaska and 40 days from the Middle East.

Refineries are producing at capacity, and the state has less storage available than other states, according to the report.

That means any disruption in production of gasoline — such as unexpected repairs at a refinery — can have a big effect on prices, Garfield said.

Several unidentified refineries had unexpected problems that led to decreases in production in late July, Garfield said. She said she could not give specifics, because although the Petroleum Industry Information Reporting Act requires refineries to submit production information to the state, it does not allow the state to share details about issues that effect output.

Refineries typically do not share information about their difficulties, so for now the public has no way of knowing what the problems were.

But those issues in July put pressure on supplies and caused prices to climb even more. Now, however, gasoline production is rebounding, and Garfield said prices are leveling off.

The run-up occurred as prices were rising nationwide with an increase in the cost of crude oil, according to AAA. Investors were betting on good economic news coming from China, said AAA Northern California spokesman Matt Skryja.

On a global level, economic news has tempered, and analysts believe prices are likely to stay around their current level or drop slightly in the coming weeks, he said.

Prices may taper off as the summer driving season ends and demand dwindles, Skryja said.

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