This one crazy trick could lower gas prices

Presented by

With help from Blanca Begert and Camille von Kaenel

FILLING UP: Gov. Gavin Newsom has been searching for a way to keep the state’s notoriously high gas prices under control. An old-fangled idea is getting new mileage.

California’s oil czar last week suggested California could stockpile gasoline and sell it to soften price spikes like those of the last two summers. It just might work, experts say.

It would function like the federal Strategic Petroleum Reserve, but for California’s special gasoline blend, which is formulated to address the state’s persistent air pollution (and is part of the reason California’s gas prices are persistently higher than the rest of the country’s).

Tai Milder, director of the California Energy Commission’s Division of Petroleum Market Oversight, tucked the proposal into the end of a letter he sent Newsom last week on his ideas to tamp down gas prices, which also included making gas trades public and requiring refiners to store more gasoline.

The CEC didn’t elaborate when asked for more details. But there’s a lot of history behind the concept.

Under orders from the Legislature, the agency hired consultant Stillwater Associates to sketch out how it would work in a study published in 2002. Stillwater suggested a “Gasoline Bank of California” that would allow market participants to withdraw gas for a fee and replace it later.

David Hackett, who chairs Stillwater’s board, said he thought the idea made sense then and makes more sense now as California’s gasoline market has only gotten more volatile.

Price spikes the last two Septembers “probably would have been tamped down if there were additional gasoline available,” he said.

Those kinds of price spikes could probably be prevented with a reserve of just 100,000 barrels, said Hackett, a much smaller amount than the 2.5 million barrels the firm had contemplated in 2002.

In order to respond to real-time price spikes, the state would need to be able to draw on the reserve with a day or two’s notice. To do that, Hackett said, the state would have to store the gas near refineries and pipeline networks in Los Angeles and the Bay Area.

Stillwater recommended the reserve back in 2002, but the CEC rejected it based on concerns that it might not work as planned and could end up reducing supplies and opening markets to manipulation. The oil industry fought it, too, and still doesn’t like the idea.

It presents “enormous logistical challenges,” California Independent Petroleum Association president Rock Zierman said in an email, adding, “What this issue highlights is the value of producing more of our energy at home, not being so reliant on tankering in foreign oil from Saudi Arabia and Iraq into our crowded ports.”

Hackett shares concerns about crowded ports and increasing oil imports, but said the CEC should give the reserve a chance.

“I think it’s something they ought to consider,” he said.

Severin Borenstein, a UC Berkeley economist who has also analyzed the gas reserve idea, agreed it could help. But he’s more interested in solving the mystery gasoline surcharge that still lurks in California’s gas prices.

“This might be a way to smooth out the price spikes, which obviously are the things that get the most political and media attention,” Borenstein said. “But if you’re trying to address this persistent extra 30 or 40 cents a gallon we pay, and have been paying for the last eight years, this is unlikely to address it.” — WV

Did someone forward you this newsletter? Sign up here!

HALF-OFF OIL COMPANY: California Resources Corporation’s stock rose on its announcement today that it’s buying rival oil producer Aera Energy.

The company’s press release was rosy about the future, and focused on its plans to be a key player in sequestering carbon dioxide underground to help California reach its goal of neutralizing carbon emissions by 2045.

“This combination will create an unquestioned leader in energy transition, producing low carbon intensity fuels that California needs while accelerating the decarbonization of the state’s industrial and energy industries,” Francisco Leon, CRC’s president and CEO, said in the release.

We went back to Hackett, a longtime California energy industry consultant. He said the consolidation is another sign of oil’s decline in California, coming on the heels of Chevron’s announcement last week that it was reducing expectations for future earnings in the state.

Four years ago, CRC was bankrupt. Less than two years ago, Aera was owned by Exxon Mobil and Shell, who sold it to German company IKAV for $4 billion. The company was valued at $2.1 billion in today’s sale. It’s all evidence that California’s war on Big Oil — which also features a major lawsuit and a potential cap on profit margins — is advancing.

“Aera has kind of thrown in the towel about trying to grow the oil business here, so they’re selling out to CRC,” Hackett said. — WV

ONE-TWO PUNCH: Sen. Scott Wiener’s bill to speed up housing construction in urbanized coastal areas of San Francisco suffered two blows this week.

Yesterday the San Francisco Board of Supervisors voted 8-3 in support of board president Aaron Peskin’s resolution to oppose SB 951, which would limit the ability of the California Coastal Commission to delay or appeal housing developments.

This afternoon, the California Coastal Commission came out against it as well, saying it would affect the commission’s oversight of non-housing projects like public facilities and critical infrastructure like sea walls. Some board members also worried about setting a precedent by removing residential areas of the city from the commission’s jurisdiction.

“If we just start changing the boundaries of the Coastal Commission anytime we disagreed with where the boundaries were and how that impacts a project, there’s no purpose of really having a coastal zone,” said Commissioner Justin Cummings.

Wiener said he was open to amendments.

“Tackling the housing crisis and protecting precious coastal resources are not mutually exclusive,” he said in a statement. “We’ll continue to work with the Coastal Commission and the City of San Francisco to resolve the issues that led to the need for this local control bill.” — BB

PAPER OR…: Sens. Catherine Blakespear and Ben Allen and Assemblymember Rebecca Bauer-Kahan are set to propose an amped-up ban on plastic bags tomorrow in order to address concerns that the state’s existing bag ban is too narrow. — CvK

SPOTTED AT BROWNSTEIN: Movers in the water world gathered at an open house for law firm Brownstein Hyatt Farber Schreck in Sacramento last night. Attendees included California Farm Bureau senior policy advocate Alex Biering, Brownstein’s Baltazar Cornejo, who previously staffed natural resources bills with Sens. Scott Wilk and Anthony Cannella, and land use and natural resources attorneys Elisabeth Esposito and Ryan Waterman.

Former Schwarzenegger communications deputy chief Rob Stutzman, who now runs his own Stutzman Public Affairs, was also there, as was former Energy Department and former Assembly Speaker Anthony Rendon press secretary Kevin Liao, who now works at public affairs firm Bryson Gillette. — BB

— The EPA tightened its soot standards today. While the vast majority of the country meets the new requirements, most Californians live in areas that were already not in attainment.

— Millions of gallons of raw sewage spilled out in Los Angeles County during the rains.

— A blueprint is emerging for what a second Donald Trump term would mean for environmental policies.