How One Oil Refinery Explosion Cost Us Billions of Dollars at the Pump
Last year's ExxonMobil refinery explosion in Torrance was a mystery for weeks after it happened.
Was the entire facility offline? ExxonMobil wasn't saying. That's an important question for a nation-sized state that pretty much depends on 14 California refineries to keep its cars on the road.
When even one of those facilities goes offline, we all feel it almost immediately at the pump.
The Golden State is an island when it comes to fuel because smog regulations require special blends not sold elsewhere. Importing gas is a limited option.
Refiners have a tight grip on California's gas, critics say: Four of them control 80 percent of the market, and they can quickly cash in when a facility goes down and supplies are squeezed.
A recent study by Santa Monica–based think tank RAND Corporation concludes that ExxonMobil's Torrance outage cost California drivers nearly $2.4 billion at the pump. "Macroeconomic analysis indicates that the lost supply associated with this one incident reduced the size of the California economy by $6.9 billion," RAND states.
The refinery is set to go back online Mother's Day after being out of the game since the explosion on Feb. 18, 2015. Federal investigators said equipment failures led to the blast. The facility is normally good for 155,000 barrels of gas per day, RAND says.
That $2.4 billion went from your pockets to those of California's refiners, according to the RAND study, commissioned by the state.
"This resulted in a windfall profit on the order of $2.4 billion to the refiners that maintained or increased production during this time," RAND states. "Thus, although the losses to the refiner having the incident were significant, the gains for the rest of the industry were more than four times as great as those losses."
The report comes as the state is weighing regulations that would seek to iron out price spikes when refineries go offline. Key proposals include requiring hundreds of millions of dollars worth of preventative maintenance and mandating that refiners collectively maintain minimum reserves for a rainy day.
"This is the only bright spot in a dark chapter," says longtime industry critic Jamie Court, president of Santa Monica–based Consumer Watchdog. "Regulations will create maintenance and safety protocols. Oil refineries should be forced to maintain minimum levels of inventory and have a plan to make up for lost supplies in the event of an outage."
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While maintenance rules could cost refiners millions of dollars, as you can see, the savings for consumers would be many times that. Of course, Court thinks the industry would rather just keep things as is and profit from outages.
"Clearly the refiners don't want to do this," he told us, referring to the proposed rules. "The oil refiners keep these refineries at the point of breaking because they know there's an uptick in profits."
In fact, a shell game of offline refineries in California has produced pump prices that are often about 70 cents above what the rest of the nation pays for a gallon, Court has argued.
A few weeks after the Torrance explosion, the Auto Club of Southern California estimated that California pump prices had gone up by nearly $1. The spike inspired two L.A.-area members of Congress, Ted Lieu and Maxine Waters, to call for a federal investigation.
The RAND report says a refinery outage can "easily" take out "10 percent of the total gasoline production capacity in the state."
The California Energy Commission's Petroleum Market Advisory Committee is expected to take up the matter of tighter refinery rules this summer.
"I think they're well on their way to being implemented," Court said.
Let's hope so.
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