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California Refiners Blame 'Hostile Regulatory Environment' for Price Spike

California Refiners Blame 'Hostile Regulatory Environment' for Price Spike

In response to a California Energy Commission inquiry, refiner executives
suggest a hostile regulatory environment and a decline in imports amid regional
refinery closures amid post-COVID demand could be behind a late-September
gasoline spike within the state.

On Sept. 30, CEC Chair David Hochschild requested refiners provide reasons for
an 84ct/gal increase in the price of gasoline in California over a 10-day
period in September.

"This degree of divergence from national prices hasn't happened before,
regardless of planned or unplanned refinery maintenance, and no explanation has
been provided," Hochschild said in a letter addressed to refiner executives.
"The oil industry owes Californians answers."

Unplanned and planned refinery outages "do not adequately explain the
significant increase in retail prices in California," Hochschild said.

"For Valero, California is the most expensive operating environment in the
country, and a very hostile regulatory environment for refining," Valero's Vice
President of State Government Affairs Scott N. Folwarkow said in a written
response to the CEC. "California policy makers have knowingly adopted policies
with the expressed intent of eliminating the refinery sector. California
requires refiners to pay very high carbon cap and trade fees and burdened
gasoline with cost of the low carbon fuel standards. With the backdrop of these
policies, not surprisingly, California has seen refineries completely close or
shut down major units. When you shut down refinery operations, you limit the
resilience of the supply chain."

Folwarkow acknowledged planned maintenance activity is underway at one of
Valero's California refineries but did not specify which one.

"As to why inventories may be low, we believe it is because post-COVID demand
is growing and supply is limited," Folwarkow said. "We have been endeavoring to
keep our refineries at full production and no one has produced more low carbon
renewable fuel for the California market than Valero. Nevertheless, the market
has been very tight. With a very short supply market, inventories are pulled
down to satisfy the demand. In fact, the Commission would not want to see
refiners holding inventories in a tight market."

California's gasoline import options are limited due to state fuel blend
specifications, PBF's Senior Vice President Paul Davis said.

"With (approximately) 120,000 barrels per day ... scheduled to be shut down in
the East Bay in 2023, the state's gasoline supply and demand profile will be
further challenged," Davis said, referencing scheduled refinery closures in the
San Francisco Bay Area.

Davis also highlighted the impact of Marathon ceasing traditional refined fuel
production at its Martinez refinery in the Bay Area was "not evident until
post-COVID demand for fuels began rebounding."

"Finally, as a refiner with no retail outlets, there are no measures that PBF
alone can implement that will impact the price of gasoline for consumers in the
state of California," Davis said.

Responses from Chevron, Marathon and Phillips 66 were not available on the CEC

--Reporting by Bayan Raji,; Editing by Michael Kelly,

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