California Gas Policy Under Scrutiny after Phillips 66 Closure

Editor's note: This article has been revised to include the capacities of the Los Angeles refining operations.

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Opponents of California Governor Gavin Newsom doubled down on their criticism of his energy policies amid concerns of runaway fuel prices after legislation on gas storage and a decision from Phillips 66 (NYSE:PSX) (Houston, Texas) to shutter its Los Angeles refineries.

Citing "market dynamics" and questions about the long-term future of its refinery, Phillips 66 said Wednesday it would shutter operations at its Los Angeles refinery by the fourth quarter of next year.

Phillips 66 operates two plants in Los Angeles: Los Angeles Refinery and Los Angeles Refinery - Wilmington. The Los Angeles Refinery contains the lone 133,000-barrel-per-day (BBL/d) crude unit, while the Wilmington plant consists of upgrading units only. The plants can yield as much as 85,000 BBL/d in gasoline. Subscribers to Industrial Info's Global Market Intelligence (GMI) Petroleum Refining Plant Database can click here for the plant profiles.

Mark Lashier, the chairman and chief executive officer of Phillips 66, said his company would work to ensure that demand is supported in part by supplies from its renewable fuels complex in the San Francisco Bay area.

"Phillips 66 remains committed to serving California and will continue to take the necessary steps to meet our commercial and customer demands," he said.

Because of higher state taxes, California has the highest retail gasoline prices in the Lower 48 states. Travel club AAA showed a state average of $4.66 per gallon, compared with the $3.20 for the national average on Thursday.

James Gallagher, a Republican member of the state assembly, said the refinery closure is a result of the policies embraced by Newsom, a Democrat.

"Thanks to Gavin Newsom's showboating and incompetence, hundreds of workers will lose their jobs while California drivers will face a massive price hike," he said.

His comments followed Newsom's signing of legislation, AGX2-1, which mandates that refiners maintain fuel storage to avoid any supply-side issues that would lead to price spikes at the consumer level.

"Price spikes have cost Californians billions of dollars over the years, and we're not waiting around for the industry to do the right thing--we're taking action to prevent these price spikes and save consumers money at the pump," the governor said Monday.

The measure authorizes the state energy commission to develop, regulate and enforce storage requirements for in-state refiners. The Western States Petroleum Association (WSPA), a group lobbying on behalf of the fossil-fuel industry, said new legislation comes ahead of a 47-cent-per-gallon tax increase on retail gasoline, suggesting AGX2-1 is just cover for higher prices.

"Legislators still fail to understand our industry or what drives high gas prices," said WSPA President Catherine Reheis-Boyd. "Regulators remain fixated on controlling businesses with more taxes, fees and costly demands."

About half of what consumers see at the pump is a result of crude oil prices. The rest comes from taxes, refining costs and transportation. Along with crude oil, retail prices for gasoline have been largely suppressed for much of the year, with California's state average down more than $1 per gallon from year-ago levels.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).