Gov. Jerry Brown Orders Switch to Winter Gas To Dampen Price Spike

A move by the governor is made to help ease the dramatic spike in prices at the pump.

Governor Jerry Brown Sunday ordered California smog regulators to allow winter-blend gasoline to be sold in California this month, a move intended to reverse a sudden scare in the wholesale gasoline market that saw prices shoot up nearly 50 cents a gallon in six days.

In the Los Angeles market, the average price today went up nearly 4 cents, to another record level: $4.696. The Orange County price average was one cent less, and also at a new record for the second straight day.

The governor ordered the California Air Resources Board to allow refiners and gas stations to roll out the winter blend before its previously- scheduled Oct. 31 sales date, an action the governor said will increase gas supplies up to 8-10 percent, "with only negligible air quality impacts."

In a letter released at noon, as California gas prices fluctuated widely for the seventh straight day, the governor said the market variations were imposing "unacceptable cost impacts on consumers and small businesses." This, he said, was threatening "significant economic disruption, and serious harm to public safety and welfare."

An analyst said California's wholesale gasoline market has gone "into a panic about the adequacy of California fuel supplies" Jeffrey Spring of the Automobile Club of Southern California said the market disruption followed a power failure at the ExxonMobil Torrance Refinery and closure of a Chevron pipeline that moves crude oil to Northern California last Monday.

Other pressure on the state's gas market includes local refineries dropping production levels, energy companies exporting fuel to Mexico and other countries, and allowing inventory to dwindle in anticipation of switching over to production of winter blend gasoline, Spring said. The average price of a gallon of self-serve regular gasoline in Los Angeles County rose to a record $4.661 Saturday, increasing 12.2 cents from Friday. In Orange County, it settled at one penny lower than LA.

"I am directing the Air Resources Board immediately to take whatever steps are necessary to allow for an early  transition to winter-blend gasoline" to be sold in California, the governor said in a letter to Mary Nichols, his appointed head of the CARB.

Some clean air advocates had worried that such a move would hurt air quality in October, which is one of the hottest months in coastal California due to Santa Ana windstorms and other seasonal weather fluctuations.

The governor said today that winter gas evaporates more quickly than summer blend, which takes longer to evaporate and is better during the smoggiest months of the year in the summer.

Brown said he expected gas prices to settle down, now that the ExxonMobil refinery in Torrance has resumed operations following an electricity outage last week. A Tesoro refinery in the South Bay is expected to resume production next week, after its maintenance shutdown.


Mike Ruehle October 08, 2012 at 07:40 AM
This is largely a political move and nothing more. The major difference between winter and summer gasoline specs is the Reid Vapor Pressure (RVP), which is the gasoline's tendency to emit hydrocarbon vapors. Gasoline emits more vapors during the warm summer temperatures than in the winter. For this reason the summer RVP spec is low to minimize emitting vapors from tanks and during refueling. Raising gasoline RVP to winter specs allows refiners to blend relatively high RVP butane into gasoline, something that typically does not occur during the summer time low RVP spec. There is butane in ALL crude oils. Petroleum refineries produce butane all of the time. During summer low RVP months when refiners can't blend it in gasoline, they ship it via rail car to be stored out-of-state. During the winter high RVP months, the refiners bring the butane back via rail cars from out of state to again blend it into gasoline. Most refineries have a 200+ fleet of rail cars to move the butane back and forth from out-of-state storage. It takes months to schedule these types of rail shipments.
Mike Ruehle October 08, 2012 at 07:52 AM
CONTINED...... Unlike trucking, which is infeasible over large distances, it takes over 30 days for a rail car to make a round trip and return to be refilled. Railcars are carefully scheduled to prevent shutting down the refineries because the refinery butane tanks are full. Refiners are currently still in the mode of shipping butane out of state. Their full rail cars must be turned around and brought back to California. Just remember nothing happens fast with the railroad. It will take a month to get things moving in that direction. By that time, the season will already have been scheduled. If the refiners had more time or had known about it a month or so ahead of time, this regulation change would have certainly helped increase the supply of California gasoline and help to reduce its price. As is, it is too close to the RVP change over and inflexible resources have already been set in motion. For this reason, this late change smacks more of politics than it does of reality. But what the heck, at least its a move in the right direction. If Governor Brown wants to have a profound impact on gasoline prices, he should eliminate the summer specification entirely next year (begins in April) and stick with the winter spec year round. But he needs to let the refiners know now so they can begin planning for it.
Luis October 08, 2012 at 01:51 PM
I think the oil companies just found another way to manipulate the market and get their way for the time being. The final goal is to eliminate the EPA and this is just one step closer to that end.
John B. Greet October 08, 2012 at 02:24 PM
This was extremely informative, Ruehle. Thanks!
Mike Ruehle October 08, 2012 at 04:17 PM
You may be right. It's all about making money, and blending butane into gasoline is a huge money-maker, huge. Its wise to remember that just because there is more gasoline with the butane is blended into it does not mean the oil companies will reduce the price of that gasoline. They are going to want to keep as much of that improved margin as they can.
Belmont Park October 09, 2012 at 02:10 AM
I think we should send a loud and clear message to the oil companies. I challenge everyone to NOT fill your gas tank when you need gas, just put in what you need, ride your bike, walk, carpool, take the bus/train. Do whatever it takes to cut back on your consumption and just sit back, watch, and see.
Mike Ruehle October 09, 2012 at 06:10 AM
Not meaning to be rude, but your idea has been bantered back and forth for at least 30 years with zero effect. It sounds good. However, in reality, oil companies don't care if gasoline is boycotted for a day because they know consumers will just buy twice as much the next day. The only "loud and clear message" that oil companies appear to pay any attention to is government subsidies of alternative energy. Oil companies know that will attract venture capital firms to invest money in alternative energies in order to recoup the subsidies. Once the venture capital firms get involved, you can expect to see significant improvements in multiple alternative energy industries, especially solar power, much like the huge improvements in telecom and computer systems whence the venture capital flowed into during the 80s. In my opinion, and against my better judgement, the government needs to add $1.00/gallon tax to the price of gasoline and use ALL of the proceeds to subsidize alternative energy development. I know another dollar tacked on to the price of gasoline appears to be a bitter pill to swallow. However, you can expect the gasoline price escalation to slow as alternative energies become more competitive. Personally, I think it is a small price to pay to insure our childrens future. I just don't trust my government from not raiding the extra dollar tax to spend on their othert pet projects.
John B. Greet October 09, 2012 at 06:27 AM
Personally, I would see us end all government subsidies for all energy development, across the board. Alternative energy industries should succeed or fail on their own merits, or lack thereof, as should more conventional energy industries. The only reason Solyndra didn't fold before it did is because we propped it up with misspent public funds and the end result was the same, it folded because it could not produce a viable product at a competitive price. We squandered about $16.3 billion in total taxpayer support on Solyndra, the company failed anyway, and we didn't even get a lousy t-shirt. Trust the government with still more tax revenue to squander? No thanks!
Panglonymous October 09, 2012 at 06:43 AM
John, if conventional energy has a stranglehold on energy policy how will alternative energy ever have a chance to fail on its own merits? How can that stranglehold be broken?
John B. Greet October 09, 2012 at 07:15 AM
Pan, if alternative energy can be made viable, the private sector will find a way to make it so. It will not need the government's help anymore than the Wright Brothers needed government help to develop powered flight, Henry Ford needed government help to develop a way to mass-produce cars, or Steve Jobs needed government help to develop sweeping innovations in personal computing. Bright, talented, people will one day make alternative energy viable and they wont need government help to do it and when they make their discoveries, investors will flock to them and heap money onto them to further develop their successful ideas. That's the way innovation and technological advancement should work in a free society that is rightly constrained by the rule of law. Government is artifice, and those we elect to represent us are no better at making sound investments than anyone else. The only difference is that when our elected officials "invest" they assume no personal risk, because it is not their money they are investing. That money is ours and, not surprisingly, they never bother to ask *us* whether or not we agree with their investment decisions. They just speculate, and they do so with public funds that are sorely needed elsewhere, like in our schools, our infrastructure, and our public health and safety. End all taxpayer-funded energy subsidies. Let the markets find the successes, just as they did the Wrights, Ford, Jobs, and so many others.
John B. Greet October 09, 2012 at 07:23 AM
BTW, Pan, in the 30 years between 1973 and 2003, federal subsidies for renewable energy development exceeded those for that of fossil fuels ($26 billion and $24 billion, respectively). To my mind this hardly represents a "conventional energy...stranglehold on energy policy."
Panglonymous October 09, 2012 at 08:10 AM
John, why does a player holding the commanding heights need ANY subsidies? Doesn't that give them an *advantage* to maintain the stranglehold on policy? If things hold true to form, alternative energy will emerge at the pace that favors the profit stream of conventional energy players - when it is most profitable for THEM to shift, it shall shift, and they will remain dominant. Society be dammed. I agree with you 100% - let the free markets and the rule of law prevail - I just don't see these conditions as in effect or in the offing.
Mike Ruehle October 09, 2012 at 08:53 AM
10 years ago I worked for a major oil company that purchased the 3 largest solar companies in the world and shut them down. Two of those companies were the developers of leading technology on solar panels. The engineers from both those solar companies were absorbed into the oil company. Oil companies are more or less an energy monopoly that alternate energies can not compete with without help in the short term. Believe me, I'm a free market guy who also doesn't believe in subsidies. However, I'm afraid that won't work in this instance and in our society. Here's my reasons. Up until about 10 years ago, crude oil supply substantially exceeded demand. That was back when people in china and India had no cars. That has changed. Crude oil demand is accelerating and is outstripping supply. That's why we've seen the rapid price increases over the past 10 years. Demand for oil from India, China, Russia and third world countries will continue to increase faster than supply is developed. Expect prices to rise accordingly. $10 per gallon in five years is not out of the question. Of all developed countries, the US is the most dependent upon oil, and the US standard of living will be impacted the greatest as the price goes up and more income is be shifted to paying for energy consumption. Waiting until this happens will be too late. The infrastructure for alternative energy takes years to build. Though it pains me, subsidies are the only alternative.
tiny October 09, 2012 at 03:26 PM
How about the T Boone Pickens plan to convert the 30 million trucks in the US to run on the ole natural gas. And with just converting the trucks you wouldn't have to install pumps in as many stations. Through tax breaks and just gov't credit, get er done. Ya, billions here and there, but not being dependent on foreign oil - priceless.
Mike Ruehle October 09, 2012 at 05:19 PM
Compressed Natural Gas (CNG) combustion engines may be a substantial solution. However, the conversion from gasoline/diesel to CNG is much more difficult and time consuming than you might think. The current pumping stations in no way resemble what would have to be put in place for safety's sake. Keep in mind, unlike gasoline/diesel which are liquids at atmospheric pressure, CNG is a vapor under pressures as high as 3,000 psi and would require a substantial tank with high frequency inspection requirements at each fueling station. http://www.consumerenergycenter.org/transportation/afvs/cng.html Locating this fueling station tank is difficult when you consider a tank full of hydrocarbon at high pressure is a significant risk to life when located in a residential or commercial area. Somehow it would have to be located where a car or truck could not run into it. If it were underground, there would have to be a way to regularly inspect the tank for corrosion or cracks. Don't forget there also would have to be a high pressure fuel tank in each vehicle. I don't know about you, but I'm a little concerned the technology doesn't yet exist to prevent a hazardous situation in a car accident. Another difficulty is the actual fueling of vehicles without creating a hydrocarbon release. I suspect this would require a dedicated workforce with special training. These are all difficulties that can be overcome. The problem is how to finance it without subsidies?
Mike Ruehle October 09, 2012 at 05:40 PM
What I mean by subsidies is to provide a rebate to consumers to offset their increased cost. For instance, consumers who utilize solar cells or wind turbines to their electrical needs should receive $0.10 per KWH for electricity they put back into the grid in excess of what they consume. Currently, power companies provide little if any credit for power put back into the grid. This example of consumer based subsidy would increase the market for solar panels and wind turbines, and thus garner competition and innovation. Though it may be a poor example, this is similar to how the government's ethanol subsidy worked. The government reimbursed oil companies for the additional cost of adding more expensive mandated ethanol to gasoline. Rather than simply giving money to ethanol producers like ADM to produce more plants which nobody but farmers wanted, the government used the ethanol subsidy to drive up the market demand for ethanol. This encouraged hundreds of new ethanol plants to be built with venture capital money rather than taxpayer money. Providing large subsidies to companies like Solyndra is not what I'm recommending. That is a mistake. To make subsidies work, they have to be given to the consumers (us) to create a market. Once the market is created, venture capital investments will provide the funding for the technology and innovation to make competitive alternative energy sources.
tiny October 09, 2012 at 06:15 PM
Ok, it sounds like there are issues to deal with, but we're using natural gas in our homes and they're not blowing up. There first has to be the political will to do it, then you work it out. You could set up a little reconstruction bank and issue bonds for this particular job, or just plain subsidize it. There are many ways, but there has been no political will do real economic activity for 50 years or so, (except micro electronics and the internet).
Panglonymous October 09, 2012 at 06:17 PM
All interesting stuff, Mike, thanks for kicking in. "The infrastructure for alternative energy takes years to build. Though it pains me, subsidies are the only alternative." So, do consumer subsidies to jumpstart alternative have a chance if actively opposed/blocked by the lobbying and strategic allocation of campaign funds by conventional energy?
Mike Ruehle October 09, 2012 at 06:38 PM
If a bond is issued, there has to be a way to pay back the bond holders as promised. This can only be done by a profitable industry or the backing of the government (subsidy). The improvements in micro electronics and the internet were driven by venture capital investment once a market was identified. Venture Capital investment drives USA's innovation. Your natural gas example is both a good and bad. In my opinion, good because it proves that infrastructure issues like natural gas pipelines need to be undertaken despite the objections of environmentalists. Bad, because most of those pipelines were made out of non-code materials, installed over 80 years ago and have NEVER been inspected. Unlike oil company pipelines which must be inspected every three years, natural gas transmission pipelines in the street outside your house have NEVER been inspected. Over the next 20 years, you will hear more about failures of these systems. It is already starting to happen on the east coast where such systems have been in service for a longer time.
Mike Ruehle October 09, 2012 at 06:46 PM
They don't stand a chance against the lobbyists unless the elected leaders become representatives of the people rather than representatives to their re-election. Big oil, internal combustion engine companies and their unions have unlimited funding, lobbyists and power. The only reason the ethanol subsidy went through is because farmers have comparable political power and oil companies didn't see it as a threat.
tiny October 09, 2012 at 07:05 PM
The money going to companies that build the CNG combustion engines and the ones building the delivery systems will easily be able to pay the loans back and make a profit because there will be 30 million trucks needing to fuel up. Plus you can retool your closed down auto plant factories and put people back to work. "Venture Capital drives investment and innovation". But gov't directed projects like the Apollo Project and other science drivers give a direction and drive it more. You can't inspect and set standards for natural gas pipelines?
Rose Hernandez November 23, 2012 at 10:34 PM
Amen, amen and amen!


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