Slouching Towards A Self-Inflicted Energy Crisis

California appears to be headed towards an energy crisis of its own making. The state’s gasoline prices at the pump are high and could go higher if a key piece of infrastructure goes out of business due to the state’s harsh regulatory environment in the coming months.

As millions of Americans currently enjoy gasoline prices under $3.00 per gallon, California’s gas price remains $1.55 above the national average according to AAA. Almost all of the difference is attributable to the state’s onerous gas tax regime, as detailed by the U.S. Energy Information Administration. Hawaii has the 2^nd highest gas prices, but that state has no choice but to import all of its oil needs. California doesn’t have that excuse – its high costs are entirely self-inflicted due to choices made by the state’s government.

Loss Of Critical Infrastructure Leads To Energy Crisis

California’s situation with gas prices and supplies threatens to grow significantly worse with the impending closure of its sole remaining major south-to-north oil pipeline. On October 25, USC Professor Michael A. Mische, UC Berkeley Professors James W. Rector, and Joseph B. Silvi issued a policy brief in which they lay out the various factors that have led to the state’s energy dilemma.

From the report: “California’s in-state oil production has declined by approximately 65% since 2001, while its dependency on foreign imports has risen by nearly 70%. At the same time, refinery capacity has fallen 21% since 2023 and gasoline demand remains largely unchanged at roughly 36–40 million gallons per day. SB 237, designed to permit up to 2,000 new wells annually in Kern County, will add some production but not enough to offset the overall statewide decline and will not adequately stabilize the state’s petroleum infrastructure.”

Basically, the professors contend that, while the goals of SB 237 and a companion bill, AB 30, are directionally positive, they amount to “too little too late” to stabilize the state’s infrastructure and enable the pipeline in question, the San Pablo Bay pipeline, to stay in business. Robert Waldron, CEO of CorEnergy Infrastructure Trust, which operates the pipeline, warned Governor Gavin Newsom in a September letter that his company was bleeding cash, taking in seven-figure losses each month due the flagging in-state oil supplies and dwindling refining capacity.

Waldron further warned his company could be forced to shut down the part of the line which moves oil south to north, cutting off the only remaining artery that transports oil from Southern California’s oil fields in Kern County to the Northern part of the state. The likely outcomes of a shutdown are entirely predictable: Shortages and higher prices for Northern California consumers, and higher in-state emissions as the absence of pipeline capacity forces oil to be transported south to north on trucks and trains, most of which remain powered by diesel fuel despite Newsom’s failing efforts to force them all to be converted to electric.

Waldron tells Politico that the shuttering of in-state refineries in response to Newsom’s 2020 edict phasing out the sale of internal combustion cars in the state is at the center of his pipeline’s non-profitability. In 1982, California was home to 43 oil refineries; but, due to an array of increasingly onerous crackdowns on the sector from Newsom and his predecessors in office, that number is now down to just 7, with more retirements anticipated in the next few years. As quoted in the California Globe, Chevron Upstream President Andy Walz noted, “I think it’s been a tyranny of about 25 years to get the refining business to leave California.”

Chevron made news in August, 2024 when it relocated its headquarters to Houston, in large extent due to the state’s increasingly harsh political and regulatory climate. That was no spur-of-the-moment decision given that the company traces its history in California back to 1879.

Bureaucratic Inertia Accelerates Energy Crisis

Waldron tells politico that CorEnergy’s south-to-north pipeline currently operates at just 17% capacity. “[O]ur pipeline’s been struggling because a majority of pipeline costs, about 80 percent, are fixed costs. So, when you lose volume, it really causes problems with cash flow,” he says, adding, “we’re going to do everything we can to keep it open. But you know, if we run out of cash, there’s nothing you can do.”

As is the case in so many parts of the United States, Waldron points to slowness in the state’s bureaucracy as also contributing to CorEnergy’s cash crunch. The company needs regulatory approval to increase its rates to try to compensate for the lack of throughput and has had three rate cases lingering before the California Public Utilities Commission, where the average decision takes 2-1/2 years to complete.

Despite the bureaucratic foot-dragging, Waldron says he’s optimistic the cases will be resolved in the near future. “Right now, I feel like we’re going to get something resolved with the PUC and the shippers [who transport oil through the pipeline]. We’ll do a settlement agreement and we’ll settle all these rate cases…and then actually work on something that’s going to make sense going forward,” he says.

But, the professors note, even if that rosy scenario materializes, the state will still face a supply crunch and higher prices at the pump due to the dwindling refining sector.

From the report: “California refineries were designed to process the state’s predominantly heavy crude oil and are configured to produce the state-specific CARBOB gasoline and ultra-low-sulfur diesel fuel. CARBOB and ultra-low sulfur diesel fuels (CARB ULSD) are the result of California’s regulatory-mandated air quality mandates, which are the strictest in the world. Because of their unique formulations most out- of-state refineries cannot produce CARBOB or CARB ULSD without costly retrofits...Because of California’s mandated special gasoline formula, there are only a handful of refineries outside of California in the world that can or will produce it.”

Conflicting State, Federal Energy Policies

Making matters even worse for Californians is the fact that federal policy is now colliding with the state’s policies to create a kind of perfect storm for consumers. President Donald Trump’s June order revoking California’s waiver under the Clean Air Act effectively put an end to Newsom’s EV mandate phasing out the sale of internal combustion cars by 2035.

Last week’s order by Trump rescinding the Biden-era CAFE standards removes the key driver behind former President Joe Biden’s goal to force consumers to move away from internal combustion cars to EVs. These moves by the Trump White House combined with the September 30 expiration of the $7,500 per unit IRA credit for car buyers spell hard times ahead for the EV industry.

For California, it all means more gas-powered cars than expected on the state’s roads amid dwindling supplies and transportation infrastructure. The various factors in play add up to a looming energy crisis, a self-inflicted wound in which there are no easy solutions and the only certainty is that the state’s consumers will ultimately pay the price.