The premium California drivers pay for gasoline compared to the overall U.S. average likely will rise significantly if state legislators continue enacting policies to discourage petroleum production, the head of Chevron’s (NYSE:CVX) refining division told Bloomberg in an interview Saturday.
California drivers paid an average of $4.94/gal of gasoline in last year’s Q4 vs. $3.22 for the national average, partly because the state’s tough low-carbon fuel standards have encouraged refineries to convert from petroleum to renewable diesel, which reduce gasoline supply and raise prices, Chevron’s (CVX) Andy Walz said in the interview.
The state government “knew it was going to happen when they wrote the legislation,” Walz said, but now “the consumer is starting to realize it. It’s becoming painful.”
Chevron (CVX) recently cited California’s strict regulations in writing down up to $4B of assets, and the latest reason for the company’s ire is a proposal to establish a maximum refining margin in California; it is already difficult for Chevron to justify growth projects at its two California refineries – which account for ~30% of the state’s capacity – because of plans to end sales of internal combustion engines in the state by 2035, and Walz said a law that effectively caps refinery profit makes them practically impossible.
“If they cap the upside when conditions are good, it’s going to make it really challenging to want to put our money there,” Walz said. “I’d rather spend money at our refinery in Mississippi.”
In part to take advantage of state incentives, Chevron (CVX), Marathon Petroleum (MPC) and Phillips 66 (PSX) have been converting refineries away from gasoline, diesel and jet fuel to renewable fuels, contributing to an 11% reduction in California’s refining capacity during the past decade.
Refiners are making decisions that are “putting us on a pathway where there could be a reliability problem,” according to Walz. “You may not have the supply of gasoline if things don’t turn out the way the government wants them to. It’s a dangerous game.”