Regulators OK Gasoline Variance for Chevron

In an attempt to prevent a gasoline shortage and price spike, the California Air Resources Board on Thursday granted a request by Chevron Corp. to sell up to 147 million gallons of gasoline in Northern and Central California that doesn’t meet the state’s stringent environmental standards.

The pollution-control agency acknowledged that the temporary variance, the first granted since California refiners began producing the cleaner-burning gasoline in 1996, could increase air pollution this summer.

The board attached several conditions to minimize the emissions increase, including forbidding the sale of conventional gasoline in Southern California and Sacramento, which have the most severe ozone problems, and levying a fine of 15 cents for each gallon of conventional gasoline sold.

“The variance was granted to avoid a supply disruption caused by unforeseeable problems at Chevron’s Richmond refinery,” air board spokesman Jerry Martin said. “They are required to sell the best fuel they have available.”

San Francisco-based Chevron, the fourth-largest oil company in the U.S., requested the right to sell the conventional gasoline because an explosion Saturday at its refinery in Richmond, Calif., which was already operating at reduced capacity because of an explosion and fire in March, cut gasoline production there to about 30% of normal.

The shortfall of nearly 80,000 barrels a day represents about 25% of the gasoline supply in Northern California, and would surely result in product shortages and sharply higher prices, officials from Chevron and the California Energy Commission testified at a hearing Wednesday.

Prices at the pump have been rising during the last two weeks in California because of higher prices for crude oil and lingering refinery and pipeline problems.

“We are very pleased that the California Air Resources Board has granted our request for a temporary variance,” Chevron spokeswoman Nancy Malinowski said. “We will get [the gasoline] wherever we can, and we will buy the cleanest-burning gasoline that we can.”

The 15-cent-a-gallon penalty could reach $22 million if all 3.5 million 42-gallon barrels are sold. The money will go into an account used to repair or scrap high-polluting automobiles--a tactic that should more than offset the pollution created by the noncomplying gasoline, Martin said. Chevron’s variance expires in 45 days.

But Craig Moyer of the Western Independent Refiners Assn. contends that the permission to buy the cheaper, conventional gasoline creates a profit opportunity for Chevron at the expense of air quality. Conventional gasoline from the Gulf Coast, for example, is 50 cents a gallon cheaper than gasoline produced to California’s standards, he said.

“This sets a very unfortunate precedent,” Moyer said. “It brings a windfall for Chevron.”

Chevron officials testified that the company hopes to sell as little of the noncomplying gasoline as possible, contending that the 15-cent fee is a “strong disincentive” that dealers will not be able to fully pass along to consumers because of competition.

“Clearly they are going to have to remain competitive,” Martin said. “A lot will depend on what the market does.”

Chevron has said it could take several months to repair the Richmond refinery but that the company expects shipments of clean-burning gasoline to begin arriving by tankers from the Gulf Coast and other locations in August.