Released December 10, 2024 | SUGAR LAND
en
Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Weak refinery margins and tight fuel regulations have created tight market conditions in California, the fifth-largest economy in the world, the U.S. Department of Energy (DOE) reported Monday.
Because of elevated state taxes and other factors, California has the highest national average retail price for a gallon of gasoline. On Monday, travel club AAA put the state average at $4.35 per gallon, relative to the national average of $3.02 per gallon.
The state is also a center for demand given the size of its economy. In April, California Governor Gavin Newsom boasted that the state economy was larger than many countries, with a nominal GDP of about $3.9 trillion and a growth rate of 6.1% year-on-year.
"California continues to punch above its weight, overperforming all but a handful of the largest countries in the world," he said.
But later in the year, he signed legislation, AGX201, that mandated refiners in the state maintain fuel storage levels that would be enough to stave off any supply-side issues that would lead to price spikes at the consumer level.
Shortly after, and pointing to market factors and questions about the long-term future of its downstream portfolio, Phillips 66 (NYSE:PSX) (Houston, Texas) said it would shutter operations at its Los Angeles refinery complex by the fourth quarter of next year. For more information, see October 18, 2024, article - California Gas Policy Under Scrutiny after Phillips 66 Closure.
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.
As recently as 2018, California was home to nearly 2 million BBL/d of refining capacity. Currently, the state has 1.609 million BBL/d of operational capacity, which is expected to decrease to 1.476 million BBL/d by the end of 2025.
The Energy Information Administration (EIA), the DOE's data division, said gasoline prices in California tend to be relatively stable compared to the rest of the country, though refining profits are on the decline.
"Weak refinery margins have persisted on the West Coast and in the United States overall since the middle of this year," the EIA said. "In May 2024, the crack spread for Los Angeles CARBOB (California Reformulated Blendstock for Oxygenate Blending)--an indicator of the profitability of refining gasoline from crude oil--dropped to 50 cents per gallon, about half of what it was the previous May."
On the back of weaker margins, Phillips 66 reported $346 million in earnings during the three-month period ending September 30, less than half what it turned in during the previous quarter. Among the largest refiners in the world, the company posted a $108 million loss from its refining segment, compared with a profit of $302 million during the second quarter. For more on that, see October 30, 2024, article - Phillips 66 Posts Heavy Loss on Weak Margins.
And the company was not alone. Valero too said it was reconsidering its options in the state in the wake of the new legislation.
The EIA added that the state is incentivizing electric vehicles, though California ranks second in the nation in terms of gasoline consumption. Even with that, refiners are struggling to generate revenue and state inventories are suppressed relative to the five-year average.
Should other refiners follow suit, the EIA said it expected imports would be needed to meet the state's transportation demands.
"However, importers face longer shipping times between when an order is placed from abroad and when a cargo of gasoline or another fuel ultimately arrives in the state," according to a Monday briefing from the EIA.
There may be relief coming around the corner in general, though. The EIA expects to see $3.20 per gallon for the national average next year, down from the expected $3.30 this year, and crack spreads should increase slightly.
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) 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 over 200,000 current and future projects worth $17.8 Trillion (USD).
Because of elevated state taxes and other factors, California has the highest national average retail price for a gallon of gasoline. On Monday, travel club AAA put the state average at $4.35 per gallon, relative to the national average of $3.02 per gallon.
The state is also a center for demand given the size of its economy. In April, California Governor Gavin Newsom boasted that the state economy was larger than many countries, with a nominal GDP of about $3.9 trillion and a growth rate of 6.1% year-on-year.
"California continues to punch above its weight, overperforming all but a handful of the largest countries in the world," he said.
But later in the year, he signed legislation, AGX201, that mandated refiners in the state maintain fuel storage levels that would be enough to stave off any supply-side issues that would lead to price spikes at the consumer level.
Shortly after, and pointing to market factors and questions about the long-term future of its downstream portfolio, Phillips 66 (NYSE:PSX) (Houston, Texas) said it would shutter operations at its Los Angeles refinery complex by the fourth quarter of next year. For more information, see October 18, 2024, article - California Gas Policy Under Scrutiny after Phillips 66 Closure.
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.
As recently as 2018, California was home to nearly 2 million BBL/d of refining capacity. Currently, the state has 1.609 million BBL/d of operational capacity, which is expected to decrease to 1.476 million BBL/d by the end of 2025.
The Energy Information Administration (EIA), the DOE's data division, said gasoline prices in California tend to be relatively stable compared to the rest of the country, though refining profits are on the decline.
"Weak refinery margins have persisted on the West Coast and in the United States overall since the middle of this year," the EIA said. "In May 2024, the crack spread for Los Angeles CARBOB (California Reformulated Blendstock for Oxygenate Blending)--an indicator of the profitability of refining gasoline from crude oil--dropped to 50 cents per gallon, about half of what it was the previous May."
On the back of weaker margins, Phillips 66 reported $346 million in earnings during the three-month period ending September 30, less than half what it turned in during the previous quarter. Among the largest refiners in the world, the company posted a $108 million loss from its refining segment, compared with a profit of $302 million during the second quarter. For more on that, see October 30, 2024, article - Phillips 66 Posts Heavy Loss on Weak Margins.
And the company was not alone. Valero too said it was reconsidering its options in the state in the wake of the new legislation.
The EIA added that the state is incentivizing electric vehicles, though California ranks second in the nation in terms of gasoline consumption. Even with that, refiners are struggling to generate revenue and state inventories are suppressed relative to the five-year average.
Should other refiners follow suit, the EIA said it expected imports would be needed to meet the state's transportation demands.
"However, importers face longer shipping times between when an order is placed from abroad and when a cargo of gasoline or another fuel ultimately arrives in the state," according to a Monday briefing from the EIA.
There may be relief coming around the corner in general, though. The EIA expects to see $3.20 per gallon for the national average next year, down from the expected $3.30 this year, and crack spreads should increase slightly.
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) 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 over 200,000 current and future projects worth $17.8 Trillion (USD).
