California blames Big Oil for gas price spikes, proposes further regulations, fines on refineries

California's Gov. Gavin Newsom has a new plan for how his state can avoid gasoline price spikes — more regulation. 

Newsom’s proposed rule would require that petroleum refiners in his state maintain a minimum fuel reserve to prevent shortages that cause higher prices. In an announcement on the proposal, Newsom blamed oil companies for high gasoline prices and promised further regulation of the industry would solve the problem for residents of the state. 

“Price spikes at the pump are profit spikes for Big Oil. Refiners should be required to plan ahead and backfill supplies to keep prices stable, instead of playing games to earn even more profits. By making refiners act responsibly and maintain a gas reserve, Californians would save money at the pump every year,” Newsom said in a statement. 

The California Energy Commission (CEC) found that in 2023, there were 63 days in which the state’s refiners were maintaining less than 15 days of supply. If the regulations would have been in place at the time, according to the CEC, Californians would have saved as much as $650 million in gas costs. 

In his announcement, Newsom claimed that by holding “Big Oil accountable,” Californians this summer spent an estimated $728 million less on gasoline than they did in the summer 2023. 

The newest proposal would impose penalties on refiners who don’t maintain the mandated supply. 

California has a history of anti-fossil fuel policies and attacking refineries in the state for allegedly causing high gas prices. According to AAA, the state has the second highest average gas prices behind Hawaii. Meanwhile Texas, which has a comparably friendly regulatory environment for oil and gas, has the third lowest gasoline prices in the U.S. 

In his announcement, Newsom boasted of calling a special legislative session and signing into law a package of “reforms” that held oil companies accountable for gas prices. He pointed to state agency investigations that further blamed refiners for “suspicious transactions” and failing to prepare for maintenance outages. 

“The data is clear: oil refiners have been racking up profits by planning maintenance that reduces supply during our busy driving seasons,” Tai Milder, director of the Division of Petroleum Market Oversight, said in Newsom’s statement. 

According to Doomberg, a group of analysts who post their writings on the group’s Substack, in the past 40 years, the number of operating refineries in California has fallen from 43 to just 14, a 67% reduction. Meanwhile, total California refining capacity dropped by 33% over the same time period. 

“Onerous regulatory burdens have forced small operators, which produce fewer gallons to absorb such costs, out of the market. Over time, this has left considerable market share in the hands of a small number of large players, who effectively operate in an isolated oligopoly,” the Doomberg analysts explained in a piece last month. 

Earlier this month, the CEC, fearing that the remaining nine refineries in the state might close, proposed that California state government take over and operate the facilities. The CEC had determined that, despite the state’s efforts to force Californians into electric vehicles, “gasoline demand will remain above two hundred thousand barrels per day (TBD) at least through 2035 if not longer.”

The CEC report predicted that demand declines would cause refineries to close. With fewer refineries in operation, the report argued, “harmful industry conduct will be amplified by bad actors acting anticompetitively.” Therefore, it was in the state’s interest to purchase and operate the refineries itself, the CEC proposed. 

While the Newsom administration continues to treat oil companies as “bad actors” and regulate accordingly, oil companies are fleeing the state. Chevron announced earlier in August that it’s moving its headquarters to Texas. It’s just one of many companies leaving the state. 

Chevron CEO Mike Wirth told the Wall Street Journal that the move was the result of the state’s regulations, which Wirth said, “raise costs, that hurt consumers, that discourage investment.” 

Chevron’s origins, according to energy analyst David Blackmon, can be traced back to the founding of the Pacific Coast Oil Company in California in 1879. 

Newsom’s latest proposal may drive even more companies away, oil and gas experts say. Catherine Reheis-Boyd, president and CEO of the Western States Petroleum Association told The Sacramento Bee that Newsom’s latest proposal for refineries is “regulatory malpractice” that will further harm the industry. She said the proposal is based on “falsehoods” and “ignores the logistical challenges and costs associated with such a plan.”