Sacramento

Three years ago, a political ad campaign in Florida sparked a heated debate between Governor Gavin Newsom and the oil industry regarding California’s high gas prices. This was ignited by a provocative ad from Republican Florida Governor Ron DeSantis, which highlighted California’s liberal policies on issues like abortion, education, and LGBTQ+ rights.

The Western Province Petroleum Association, a leading trade group, cautioned Floridians about gas and electricity costs in California. The group’s ad stated, “Gavin Newsom has banned gas vehicles and is shutting down oil production in California. Can Florida afford that?”

As California grapples with its oil policies, it seems the cost of this conflict might be too high for both the governor and the nation as a whole. With two oil refineries set to close in the upcoming year, it appears that Newsom has opted for a more conciliatory approach towards an industry often accused of price gouging.

Wilmington’s Phillips 66 refinery is expected to shut down by year’s end, while Valero in Benicia has planned to close in April. This might cut California’s oil refining capacity by about 20%, which could raise alarms about future gas prices. As the state becomes more reliant on foreign oil, consumers could face another financial shock—something the governor is eager to prevent.

Now, instead of placing blame, Newsom is urging lawmakers to take the lead and find ways to support the refineries. Katherine Lehis Boyd, the association’s president, expressed optimism about this new direction, suggesting it might be necessary.

The Shift

In April, Newsom demanded that the California Energy Commission increase collaboration with refiners to ensure a consistent fuel supply. His request followed the news from Valero about its plans to close the Benicia facility. The Energy Commission’s vice-chair responded with concerns about the ongoing decline in oil refining capacity in the state, advising on measures to boost supply.

California’s push towards reducing gas consumption is ahead of demand for zero-emission vehicles, indicating a disconnect. Gunda highlighted the need to bolster investor confidence in refineries to maintain operations and meet consumer needs.

Newsom downplayed this shift in strategy, asserting that it’s aligned with his long-standing approach. He acknowledged the undeniable reality that everyone benefits from oil and gas, emphasizing a need for a pragmatic transition.

This summer marked a notable change in tone for Newsom, who has typically campaigned against the oil industry. While he aims for zero emissions by 2035 for new cars and trucks, and has enforced laws banning new oil wells near homes and schools, he’s also urged for punitive measures on excessive oil company profits. He accused the industry of raising gas prices in retaliation against California’s climate initiatives.

However, instead of moving forward with penalties, lawmakers opted for enabling state regulators to scrutinize price surges and possibly limit profits. As demands for action continue, the governor has called for another legislative session in 2024 to consider new requirements for oil refineries. Ultimately, a recently passed law could help manage spikes in gasoline prices by giving regulators more tools.

Reheis-Boyd remarked that this change indicates the governor’s realization that simply reducing supply could lead to increased costs without addressing demand. Data shows that the closures of refineries have impacted their stock prices, emphasizing the imperative need for cooperation amidst California’s goals for a low-carbon economy.

Looking Ahead

As California lawmakers return to the capitol soon, a piece of industry-friendly legislation is on the table. There’s potential for streamlining new well drilling, particularly in Kern County, provided companies shut down older, inactive wells.

The Energy Commission may also discuss suspending caps on oil industry profits and reducing new regulatory oversight of refinery maintenance. Additionally, state initiatives are underway to find buyers for the Valero facility.

The oil sector appears hopeful, while environmental advocates express disappointment. California’s environmental lobbyist, Mary Coorsman, emphasized the importance of innovation and leadership during this critical moment in the transition to clean energy. “Now is the time to double down and innovate,” she remarked, advocating for decisive actions both locally and globally.

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