As corporate profit reports rolled in this winter from the gasoline refining industry, the case for gas price gouging grew steadily stronger.
Start with the profits of the largest refiners operating in California. Then proceed to strange activities by an oil tanker, Exxon Mobil’s SR American Progress. Close with hard figures provided by the state Energy Commission’s senior fuels specialist during a mid-February hearing. Look also at the almost 80-cent price differential between gasoline here and the average price everywhere else in the continental U.S.
The profits: An analysis (so far unchallenged) by the Consumer Watchdog advocacy group found the state’s second-largest refiner, Tesoro, also known as tsocorp, netted $1.9 billion in profits last year from California refining operations. At a time when crude oil prices were lower than they’ve been in half a generation, Tesoro, maker of 27 percent of this state’s gas (marketed under the USA and Shell labels, among others), took $423 million in fourth quarter profits alone.
Meanwhile, Valero, the state’s No. 3 refiner, netted $852 million in California last year. Valero is the only refiner reporting California-specific data. Its 2015 profits were four times Valero’s average annual take since 2010, which was just over $216 million per year.
Chevron, the state’s gasoline-producing leader with a 28 percent market share, does not break out California operations, but had worldwide refining profits last year of $3.1 billion. More than half the company’s worldwide refining is here.
Refining profits in California then, set records even as the price of crude oil dropped sharply through the year to generation-low levels, along with the profits of most other oil companies. Many responded by laying-off more than 200,000 workers and decreasing investments in oil exploration.
The usual excuses for keeping California prices almost a dollar higher than elsewhere included both complaints about the state’s gasoline and refining taxes and claims of short supplies caused by a long outage at ExxonMobil’s refinery in Torrance.
But that doesn’t explain the voyage of the American Progress, which Consumer Watchdog analyst Cody Rosenfield reported was “suspiciously hidden in (and near) Singapore for 70 days during the peak of California’s gas price crisis.” Exxon Mobil did not deny this odd stay, which was only partly in port and occurred while gas prices in the Los Angeles area were $1.50 more than the U.S. average, some stations selling fuel for as much as $5.49 per gallon.
ExxonMobil has two refineries in Singapore making gas to California specifications, but when the 30,400-ton American Progress eventually reached California with a full load, it offloaded nothing, but proceeded on to Florida with that gas.
The company, which normally makes about 10 percent of California gasoline, said only that it “has operated responsibly and in strict compliance with all laws.”
So in the unlikely event there was a lasting shortage, it was at least partly caused by an ExxonMobil decision to keep things that way.
Meanwhile, Energy Commission senior analyst Gordon Shremp reported that only about half the California price differential can be attributed to taxes: 10.3 cents per gallon for the cap-and-trade levy, 4.3 cents per gallon in costs for making gas to the state’s low carbon fuel standard and 30 cents per gallon in excise taxes – the total about 45 cents per gallon.
The refiners’ record profits, then, came from the additional almost 40 cents per gallon in differential between California prices and those elsewhere.
The industry insists it does not and has never operated as a cartel, yet none of its major players has broken with the pack in recent years and cut prices down to average U.S. levels, plus the California taxes.
Instead, the industry’s group, the Western States Petroleum Assn., said in a emailed statement from its president, Catherine Reheis-Boyd, that “Over the past decade, state and regional agencies have promulgated a long list of new regulations that has increased the isolation and uniqueness of California’s fuel market… It is important…to take into account the contributing factors that influence California’s fuel markets.”
But even when those factors are accounted for, as Schremp did, there’s still that windfall of almost 40 cents per gallon.
As long as that remains unexplained, Californians will be more than justified in assessing the refiners’ behavior as similar to a cartel, and the prices they charge as the very definition of gasoline gouging.