California Regulators Propose Gov’t Takeover Of Oil Refineries To Stave Off Energy Crisis

California regulators have proposed a variety of government intrusions into the petroleum industry in order to combat future energy price surges, according to a report released Thursday by the California Energy Commission (CEC).

As the Golden State continues to pursue its green agenda, the CEC expects some of California’s nine oil refineries to be shuttered due to falling demand, which would give the remaining refineries increased pricing power and raise the possibility of a surge in gas prices, the study concluded. To solve this problem, the commission proposed a variety of government interventions, including expanded regulation on private refineries, the establishment of state-owned refineries and an increase in imports.

“The deployment of ZEVs [zero-emission vehicles] and a robust mass transit system are critical for achieving the state’s climate goals, reducing local air pollution, and eventually eliminating dependence on the volatile global petroleum markets. As demand for gasoline shrinks, refineries may close or convert to processing clean transportation fuels,” the report states. “This will lead to fewer gasoline refineries, with increased market concentration and associated market problems that often accompany it.”

To address the market concentration issue, the CEC proposed a variety of state interventions, including setting up state-owned refineries.

“The State of California would purchase and own refineries in the State to manage the supply and price of gasoline,” wrote the study’s authors, with the scope of the initiative ranging from “one refinery to all refineries in the state.”

However, the CEC appeared to question whether creating state-owned refineries to replace privately-owned refineries pushed out of business by government energy policy was counter-intuitive, asking, “as demand for fossil fuel declines, will the presence of State-owned refineries inhibit an orderly phase out of refinery capacity?”

The CEC also suggested increasing oil imports, saying, “as the transition unfolds, California may wish to consider developing a relationship with a supplier and refiner or marketer to bring CARBOB [California-specific gasoline] into California via regular ship loads so consumers are assured a reliable import supply.”

Finally, the California Energy Commission proposed new regulations, “requir[ing] refiners and terminals to maintain contingency reserves of gasoline fuel in refineries and terminals,” that they’d be required to release “during price shocks.”

California is set to ban the sale of purely gas-powered vehicles purely gas-powered passenger vehicles after 2035. However, “even under the most aggressive scenario transition to ZEVs [zero-emission vehicles], millions of petroleum fueled vehicles are anticipated to remain on California’s roads and highways beyond 2035,” the CEC study concluded. “These vehicles will need fuel to operate, and many of the vehicles may be owned by lower income individuals and families, making it even more compelling to identify ways to ensure an affordable, reliable, equitable, and safe supply.”

The study noted that “Californians already pay higher than the national average for gasoline… partially due to state and federal mandates for improved air quality.” In 2022, after energy prices surged following the onset of the Russia-Ukraine war, wholesale gasoline prices in California spiked to $6.21 per gallon, “$2.61 higher than the U.S. average.”

The California Energy Commission did not immediately respond to a request for comment.