California’s Foreign-Oil Problem

California’s Foreign-Oil Problem

 

Why the Golden State is dependent on the Saudis, unlike most of America.

 

Following the attacks on Saudi Arabia’s oil facilities last month, many forecasters warned that gas prices would spike. Yet prices have hardly budged—except in California, where they are surging due to policies that have made the state more reliant on foreign oil.

 

Gas prices in the Golden State have shot up 30 cents a gallon in the last week amid problems at in-state refineries to a statewide average of $4.03 a gallon and may be headed higher. Prices rose a mere 10 cents nationwide in the week after the attacks on Saudi facilities and have since ticked down a few cents.

 

A big reason gas prices didn’t spike after the Saudi attack is growing U.S. shale oil production, which has doubled since 2012 to about 12.5 million barrels a day and added about six million barrels to global supply. This has more than offset the 5.7 million barrels that were temporarily knocked out of Saudi production.

 

Yet oil production in California has declined about 18% since 2012 as older wells are exhausted and regulatory costs make it less profitable to drill new ones. California has made up for its declining domestic production by importing more foreign oil by tanker, especially from, you guessed it, Saudi Arabia—which emits more CO2.

 

Regulatory costs have also forced many refiners in the state to close. The California Energy Commission notes that “the cost of complying with environmental regulations and low product prices will continue to make it difficult to continue operating older, less efficient refineries.” Few refineries outside of the state produce the unique fuel blends required by California.

 

Thus when California refineries experience problems, retailers must import foreign gasoline at steep prices, a challenge partly exacerbated by the outages in Saudi Arabia. Add California’s 61-cent-a-gallon gas tax—the highest in the country—and this is why its gas prices are now nearly $1.40 higher than the U.S. average and $1.70 more than in Texas.

 

Gov. Gavin Newsom recently remarked that “Saudi Arabia is showing us how dependent we are on foreign oil.” By “we,” he means the royal California.

 

Read on the Wall Street Journal

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