Why Gas Prices Suddenly Shot Up
Gasoline prices in California rocketed nearly 18 cents a gallon in the last week, driven higher as some refineries in the state shut down for repairs and others diverted fuel to Phoenix, where a key supply line was out of commission.
The biggest weekly increase in four years pushed the statewide average for self-serve regular gasoline to $1.92 a gallon Monday, up from $1.743 seven days before, according to the federal Energy Information Administration, the Department of Energy’s research arm.
Nationwide, the average rose 5.6 cents to $1.627 a gallon.
Californians are paying considerably less than they did March 17, when the average pump price in the state reached a record $2.145 a gallon. But the recent surge underscores the fragile condition of the state’s gasoline market: Refinery or pipeline disruptions anywhere in the West can quickly reverberate to the corner gas station.
Motorists said steep prices were hitting them hard.
“Every time I think about it, it makes me a little mad,” said John Shin, 47, a sign contractor who has put 20,000 miles on his Ford F-150 pickup in the last seven months. Shin said that he expected to spend an extra $200 on gas this month and that the added expense was starting to take a bite out of his profit.
Prices may not decline for several weeks, experts say. They attribute the recent increase to a confluence of events, including mechanical problems at several California refineries, strong summertime demand and a pipeline rupture in Arizona that cut off the flow of fuel to Phoenix from refineries in Texas. California refineries picked up the slack, further cutting into the state’s tight gas supply.
Californians have not seen such an abrupt rise in retail prices since March 29, 1999, when the cost of self-serve regular jumped 22.8 cents a gallon in one week, to $1.467, according to the Energy Information Administration. That came on the heels of three major refinery outages, including an explosion at one refinery and a fire at another that killed four people and closed the entire plant.
“Unfortunately, we are going to see more and more of these kinds of situations because our whole system is so vulnerable,” said Claudia Chandler, assistant executive director of the California Energy Commission.
That won’t sit well with motorists.
“Before, I used to spend $35 a day on gas -- now I spend $50,” said Juan Avalos, an independent cab driver who was filling his tank Monday at a 76 station in Echo Park.
Martin Castneda, gassing up his Ford Explorer sport utility vehicle at the same station, said the price hikes were “getting really frustrating.” He rides his bike to work more often, he said, and is using his wife’s Dodge Neon, a compact car, for more errands.
Joanne Shore, a senior analyst at the Energy Information Administration, compared California’s gasoline supply situation to the power blackout last week, which started in the Midwest and ended up leaving cities in the dark from New York to Michigan and in parts of Canada.
The outage highlighted that region’s reliance on an interconnected supply system that is vulnerable to failure. California is “experiencing the vulnerability” of the network of petroleum refineries in the state, which make gasoline for California, Nevada and Arizona, Shore said.
At the same time, California often is called a gasoline “island,” because there are no pipelines into the state from the East that can carry emergency supplies of crude oil or gasoline. In addition, the state’s exacting fuel recipe, which provides drivers with the world’s cleanest-burning gasoline, is difficult and expensive for out-of-state refineries to make on short notice.
As it is, California’s 13 gasoline-making refineries operate near peak capacity to produce enough fuel for the state as well as for most of Nevada and for 60% to 70% of Arizona’s needs. Fuel imports from as far away as Finland and the United Arab Emirates help keep supply in line with demand.
With so many constraints and supply so tightly balanced, glitches anywhere in the system can lead to higher prices.
When technical problems recently hit four California refineries, the state’s gasoline production fell by as much as 10%, said Chandler of the state Energy Commission. Refineries owned by Tesoro Petroleum Corp., Valero Energy Corp., ChevronTexaco Corp. and others were affected.
Then came the final blow: A pipeline ruptured on July 30, cutting Phoenix off from the refineries in El Paso that provide the city with 30% of its fuel supply.
Kinder Morgan Energy Partners, which owns the pipeline, restarted it briefly but then shut it completely Aug. 8 after finding additional problems with the pipe.
Wholesalers and retailers trucked gasoline to Phoenix from Tucson, which is still well supplied, but it has not been enough. Many gas stations in Phoenix are empty, and people have been waiting hours in sweltering temperatures to fill up at the few retailers with supplies.
The average price in Phoenix is $1.767 a gallon, up 16.8 cents from a month ago but still well below prices in California, according to AAA, the automobile association.
Another factor in the California supply squeeze is that oil companies with refineries in the state often send extra shipments to Arizona to make sure their branded stations aren’t the ones that run dry, said Gregg Haggquist, an industry consultant in Monterey.
“The refiners here that can make [Arizona’s gasoline blend], will make it, and that draws away from California because the two states share the same supply pool,” Haggquist said.
Kinder Morgan, which also owns the pipeline system that carries fuel from the Los Angeles Basin to Phoenix, is sending about 15% more fuel over that line than usual, said Rick Rainey, a Kinder Morgan spokesman.
Rainey added that the company was awaiting regulatory approval for a testing and repair plan for the pipeline in Arizona and that the line could be back in operation seven to 10 days after regulators approve the plan, providing there were no additional problems.
Meanwhile, Californians can expect more price hikes, said Duane Bernard, who owns two 76 stations in San Diego.
The wholesale price he pays went up twice in one day, he said, and now is 10 cents more a gallon than he paid on Thursday.
He’s not planning to eat the increase.
“I’m at $1.99 today,” he said, “and Tuesday I’ll be at $2.09.”
