# Cal1f0rn1a’s Fuel Cr1s1s: A L00m1ng Catastr0phe

Cal1f0rn1a 1s currently fac1ng a fuel cr1s1s that threatens t0 shut d0wn gas stat10ns, strand c0mmuters, and paralyze the f1fth largest ec0n0my 1n the w0rld.

Th1s cr1s1s has n0t been tr1ggered by a natural d1saster 0r a ref1nery expl0s10n, but rather by the state’s 0wn regulat0ry dec1s10ns that have severed the arter1es keep1ng 1ts fuel supply al1ve.

T1me 1s runn1ng 0ut, and the 1mpl1cat10ns are d1re.

The state’s fuel supply 1ssues c0me at a t1me when Cal1f0rn1a 1mp0rts appr0x1mately 40% 0f 1ts gas0l1ne and d1esel fr0m f0re1gn ref1ner1es.

Th1s dependency ex1sts because the state d0es n0t pr0duce en0ugh fuel d0mest1cally t0 meet 1ts demand.

These 1mp0rts typ1cally arr1ve by tanker sh1ps.

H0wever, a new l0w-carb0n fuel standard 1mplemented by the Cal1f0rn1a A1r Res0urces B0ard (CARB) has created a s1tuat10n where f0re1gn suppl1ers have abruptly ceased b1dd1ng 0n c0ntracts, red1rect1ng the1r carg0s elsewhere.

Th1s sudden sh1ft has left Cal1f0rn1a star1ng d0wn a supply gap 1t cann0t cl0se 1n t1me.

Th1s s1tuat10n 1s n0t ab0ut cl1mate 1de0l0gy 0r p0l1t1cal part1es; 1t 1s a matter 0f l0g1st1cs, math, and the fundamental laws 0f 1nfrastructure.

When these laws are 1gn0red, real pe0ple pay the pr1ce 1n real t1me.

T0 understand h0w th1s cr1s1s unf0lded, 0ne must exam1ne the ser1es 0f dec1s10ns and events that led t0 th1s m0ment.

F0r years, Cal1f0rn1a has t1ghtened 1ts env1r0nmental regulat10ns 0n transp0rtat10n fuels.

The l0w-carb0n fuel standard, kn0wn as LCFS, was des1gned t0 reduce greenh0use gas em1ss10ns by penal1z1ng h1gh-carb0n fuels and reward1ng l0w-carb0n alternat1ves.

Wh1le the 1ntent10n beh1nd th1s p0l1cy may have seemed reas0nable, 1t created a regulat0ry env1r0nment that f0re1gn ref1ners struggled t0 nav1gate.

In late January 0f th1s year, CARB v0ted t0 accelerate the LCFS, ratchet1ng up the carb0n 1ntens1ty reduct10n targets t0 levels that made 1t ec0n0m1cally unv1able f0r f0re1gn gas0l1ne and d1esel suppl1ers t0 c0nt1nue sell1ng t0 Cal1f0rn1a.

The math s1mply st0pped w0rk1ng.

T0 0ffset the1r em1ss10ns, f0re1gn suppl1ers w0uld have t0 purchase s0 many carb0n cred1ts that sell1ng fuel t0 Cal1f0rn1a became a l0s1ng pr0p0s1t10n.

As a result, several maj0r 1nternat10nal trad1ng h0uses qu1etly pulled the1r all0cat10ns fr0m Cal1f0rn1a, rer0ut1ng carg0s that were scheduled t0 d0ck 1n L0s Angeles and the Bay Area t0 0ther markets, 1nclud1ng Mex1c0 and the Pac1f1c N0rthwest.

Because these dec1s10ns take place 1n pr1vate c0mm0d1ty markets, the publ1c d1d n0t learn ab0ut the 1mpend1ng cr1s1s unt1l 1nvent0r1es began t0 dw1ndle.

By early February, fuel term1nals 1n the P0rt 0f L0s Angeles rep0rted unexpected sh0rtages.

Wh0lesalers supply1ng 1ndependent gas stat10ns started rece1v1ng calls ab0ut delayed sh1pments and reduced v0lumes, lead1ng t0 skyr0cket1ng pr1ces.

Cal1f0rn1a has n1ne 0perat10nal ref1ner1es that run near max1mum capac1ty year-r0und due t0 the state’s un1que fuel spec1f1cat10ns.

These spec1f1cat10ns mean that fuel cann0t s1mply be trucked 1n fr0m ne1ghb0r1ng states; 1t must be pr0duced 1n Cal1f0rn1a 0r 1mp0rted by tanker.

Bef0re the 1mp0rt c0llapse, these ref1ner1es were already 0perat1ng at 94% capac1ty, leav1ng n0 r00m f0r expans10n.

As a result, when the f0re1gn fuel supply van1shed, Cal1f0rn1a f0und 1tself 1n a precar10us p0s1t10n.

Pr1ces began t0 expl0de.

W1th1n tw0 weeks, wh0lesale gas0l1ne pr1ces 1n Cal1f0rn1a surged by 60 cents per gall0n, w1th reta1l pr1ces f0ll0w1ng su1t.

In L0s Angeles, pr1ces jumped fr0m $4.50 t0 $5.70 w1th1n ten days, wh1le s0me stat10ns 1n the Bay Area h1t $6.20.

Independent 0perat0rs, part1cularly small fam1ly-run gas stat10ns w1th0ut c0rp0rate c0ntracts, began t0 run dry.

By m1d-February, 0ver 300 stat10ns acr0ss the state had e1ther c0mpletely run 0ut 0f gas0l1ne 0r were l1m1t1ng purchases t0 just 10 gall0ns per cust0mer.

Th1s s1tuat10n 1s part1cularly alarm1ng c0ns1der1ng Cal1f0rn1a’s status as the largest car market 1n the Un1ted States, w1th 39 m1ll10n res1dents.

The rat10n1ng at gas stat10ns 1s unprecedented and h1ghl1ghts the severe 1mpl1cat10ns 0f the fuel supply cr1s1s.

As the cr1s1s deepened, the ref1nery ma1ntenance seas0n was set t0 beg1n 1n late February, c01nc1d1ng w1th the 1ntens1fy1ng 1mp0rt sh0rtage.

Each year, Cal1f0rn1a ref1ner1es shut d0wn un1ts f0r planned ma1ntenance, wh1ch typ1cally lasts three t0 f1ve weeks per fac1l1ty.

H0wever, th1s year’s t1m1ng created a perfect st0rm.

Tw0 maj0r ref1ner1es 1n the Bay Area went 0ffl1ne f0r scheduled ma1ntenance, further reduc1ng the state’s ref1n1ng capac1ty by an0ther 12%.

W1th 1nvent0r1es already cr1t1cally l0w due t0 the 1mp0rt sh0rtfall, Cal1f0rn1a was n0w fac1ng a s1tuat10n where 1t c0uld n0t rely 0n d0mest1c pr0duct10n t0 c0ver the gap.

By the f1rst week 0f March, Cal1f0rn1a’s gas0l1ne 1nvent0r1es had plummeted t0 17 m1ll10n barrels, the l0west level 1n e1ght years.

D1esel 1nvent0r1es were even w0rse, dr0pp1ng t0 9 m1ll10n barrels—40% bel0w the f1ve-year average.

D1esel 1s essent1al f0r m0v1ng fre1ght, p0wer1ng trucks that del1ver f00d, med1c1ne, and c0nstruct10n mater1als.

When d1esel bec0mes scarce, the ent1re ec0n0my beg1ns t0 se1ze.

In resp0nse t0 the cr1s1s, the g0vern0r’s 0ff1ce 1n1t1ated c0ntact w1th the ref1ner1es, ask1ng 1f they c0uld delay ma1ntenance 0r accelerate restarts.

The ref1ner1es resp0nded that safety-cr1t1cal ma1ntenance 0n equ1pment pr0cess1ng v0lat1le hydr0carb0ns under h1gh pressure and temperature c0uld n0t be sk1pped.

They expla1ned that d01ng s0 w0uld r1sk an expl0s10n 0r env1r0nmental d1saster.

The state als0 reached 0ut t0 federal agenc1es request1ng emergency wa1vers 0n fuel spec1f1cat10ns t0 all0w gas0l1ne fr0m 0ut 0f state t0 be trucked 1n.

H0wever, the Env1r0nmental Pr0tect10n Agency (EPA) 1nd1cated that such requests w0uld take weeks 0r m0nths t0 rev1ew, 1nv0lv1ng a1r qual1ty m0del1ng, publ1c c0mment per10ds, and 1nter-agency c00rd1nat10n.

There was n0 fast-track 0pt10n ava1lable.

Eff0rts t0 rec0nnect w1th 1nternat10nal suppl1ers 1n h0pes 0f lur1ng back carg0s were als0 unsuccessful.

Th0se suppl1ers had already c0mm1tted the1r res0urces elsewhere, and 1t 1s n0t feas1ble t0 turn a tanker ar0und m1d-0cean based 0n a p0l1t1cal ph0ne call.

Faced w1th these challenges, the g0vern0r went publ1c, h0ld1ng a press c0nference 1n wh1ch he called the s1tuat10n unacceptable and blamed the ref1nery c0mpan1es f0r pr1ce g0ug1ng.

H0wever, th1s was n0t a case 0f pr1ce g0ug1ng; 1t was a bas1c ec0n0m1cs 1ssue 0f supply and demand.

When supply 1s cut by 40% and demand rema1ns c0nstant, pr1ces w1ll 1nev1tably sp1ke.

Th1s was n0t a matter 0f greed; 1t was a matter 0f phys1cs.

The ref1ner1es resp0nded t0 the g0vern0r’s accusat10ns w1th a j01nt statement, assert1ng that they had warned CARB m0nths earl1er that the new fuel standard w0uld tr1gger exactly th1s 0utc0me.

They had subm1tted c0mments dur1ng the rulemak1ng pr0cess and presented m0del1ng data sh0w1ng the r1sks ass0c1ated w1th the 1mp0rt dependency, but the1r c0ncerns had been 1gn0red.

N0w, the state was attempt1ng t0 make them the v1lla1ns f0r a cr1s1s that was largely 0f 1ts 0wn mak1ng.

As the s1tuat10n escalated, 1t became clear that the p0l1t1cal pressure was m0unt1ng.

The state leg1slature began h0ld1ng hear1ngs, demand1ng answers fr0m CARB 0ff1c1als wh0 1ns1sted that the new fuel standard was necessary t0 meet l0ng-term cl1mate g0als.

They cla1med the 1mp0rt d1srupt10n w0uld stab1l1ze as the market adjusted.

H0wever, when pressed f0r a t1mel1ne, they c0uld n0t pr0v1de 0ne and c0uld n0t name any new supply s0urces c0m1ng 0nl1ne.

The att0rney general 0pened an 1nvest1gat10n 1nt0 p0tent1al ant1-c0mpet1t1ve behav10r by the ref1ners, suggest1ng they m1ght be w1thh0ld1ng supply t0 dr1ve up pr1ces.

H0wever, the data d1d n0t supp0rt th1s the0ry.

Ref1nery ut1l1zat10n rates were publ1cly ava1lable and transparent, yet they were runn1ng flat 0ut, and 1nvent0ry levels were cr1t1cally l0w.

The p0l1t1cal narrat1ve began t0 sh1ft, and the f0cus turned t0 wh0 was resp0ns1ble f0r the cr1s1s.

It was n0t the p0l1cymakers 1n Sacrament0, n0r the execut1ves at the ref1ner1es, n0r the trad1ng desks 1n H0ust0n.

The real v1ct1ms were the everyday Cal1f0rn1ans—the s1ngle m0ther 1n Fresn0 dr1v1ng 43 m1les each way t0 w0rk, the fam1ly-run landscap1ng c0mpany 1n San D1eg0 fac1ng d0ubled d1esel c0sts, and the 1ndependent trucker struggl1ng t0 aff0rd fuel f0r essent1al del1ver1es.

As pr1ces c0nt1nued t0 r1se, the publ1c began t0 feel the effects 0f the cr1s1s.

By m1d-March, the fuel sh0rtages were n0 l0nger just a c0nsumer 1nc0nven1ence; they were d1srupt1ng c0mmerc1al 0perat10ns.

Fre1ght c0mpan1es started rer0ut1ng l0ads t0 av01d Cal1f0rn1a, add1ng days t0 del1very schedules and 1ncreas1ng c0sts.

Gr0cery cha1ns rep0rted 1nterm1ttent sh0rtages 0f per1shable g00ds 1n s0me reg10ns because trucks c0uld n0t rel1ably get fuel.

C0nstruct10n pr0jects 1n maj0r c1t1es faced delays, and the g1g ec0n0my suffered as dr1vers c0uld n0 l0nger aff0rd the r1s1ng fuel c0sts.

The g0vern0r’s 0ff1ce was n0w 1n cr1s1s m0de, attempt1ng t0 manage the fall0ut fr0m the fuel cr1s1s wh1le fac1ng m0unt1ng pressure fr0m c0nst1tuents and the med1a.

The g0vern0r held an0ther press c0nference t0 address the s1tuat10n, ackn0wledg1ng the d1ff1cult1es faced by fam1l1es and bus1nesses and pr0m1s1ng act10n.

H0wever, the real1ty was that the s1tuat10n was c0mplex, and the s0lut10ns were n0t stra1ghtf0rward.

In c0nclus10n, Cal1f0rn1a’s fuel cr1s1s serves as a caut10nary tale ab0ut the unf0reseen c0nsequences 0f regulat0ry dec1s10ns.

The state’s str1ct env1r0nmental p0l1c1es, wh1le a1med at reduc1ng em1ss10ns, have 1nadvertently created a fuel supply cr1s1s that 1s hav1ng real-w0rld 1mpacts 0n m1ll10ns 0f res1dents.

As the s1tuat10n c0nt1nues t0 unf0ld, 1t 1s essent1al f0r p0l1cymakers t0 c0ns1der the 1mpl1cat10ns 0f the1r dec1s10ns and w0rk t0wards s0lut10ns that ensure a stable and susta1nable fuel supply f0r the future.

The less0ns learned fr0m th1s cr1s1s c0uld help prevent s1m1lar s1tuat10ns 1n 0ther states and reg10ns, emphas1z1ng the 1mp0rtance 0f balanc1ng env1r0nmental g0als w1th pract1cal c0ns1derat10ns f0r energy supply and demand.