As a California-based fuel and lubricant supplier, we know that our customers often pay the highest prices for their fuel and lubricants, and it’s not because of the prices we set. All Californians pay premium prices for their fuel needs and have for a long time. One of our past blogs dives into this complex issue and explains why the current legislative climate against California’s oil and gas industry has led to higher fuel prices and taxes.

However, another new piece of legislation recently passed could further complicate the situation here in California. Governor Gavin Newsom recently passed Assembly Bill (AB) X2-1 in October. According to Newsom’s office, the goal of this bill is to prevent fuel price spikes and save consumers money. The new bill will require oil refiners to maintain a minimum fuel inventory to avoid supply shortages and have a plan for resupplying during refinery maintenance outages. Of the bill, Governor Newsom said: “Price spikes have cost Californians billions of dollars over the years, and we’re not waiting around for the industry to do the right thing — we’re taking action to prevent these price spikes and save consumers money at the pump. Now, the state has the tools to make sure they backfill supplies and plan ahead for maintenance so there aren’t shortages that drive up prices. I’m grateful to our partners in the Senate and Assembly for acting quickly to push this forward and help deliver relief for Californians.”

Chevron’s response to (AB) X2-1
While the hope is that this new legislation does help reduce overall fuel costs for consumers and prevent price spikes, many in the oil and gas industry are skeptical. In response to the bill, Andy Walz, Chevron’s president of Downstream, Midstream and Chemicals, wrote a letter to the legislature declaring this new legislation misleading. He made three main arguments against the bill, including:

  • The refinery industry is usually not the cause of price spikes. Walz cites several reasons fuel price spikes occur, including economic and market behavior that force price increases when demand outstrips supply. He believes that these factors are often the root cause of price spikes and not refinery maintenance or attempts to increase profits, as suggested by legislators.
  • Minimum inventory thresholds will likely raise fuel prices. Refineries and energy suppliers go to great lengths to meet consumer demands, and requiring them to meet minimum inventory thresholds will cause undue pressure on the industry that already stores as much product as they can to meet consumer demand. He argues there will be increased costs passed down to consumers by the industry as they build infrastructure to store and produce the minimum inventory thresholds.
  • The legislation will have a negative impact on California’s energy infrastructure. Walz shares that legislation will push refineries out of the state and reduce investment in new refineries and fuel infrastructure. He also shared concerns from labor unions that the latest safety regulations within the legislation shift “maintenance safety standards to bureaucrats who lack refining experience, taking it away from knowledgeable experts and regulatory agencies responsible for protecting refinery workers and our community. This undermines the decades of expertise our teams maintain for ensuring safety in refining operations.”

Ultimately, Walz’s letter ends with this opinion that “the Californian gasoline marketplace is constrained and the government manipulation will only increase prices. To boost supply and reduce consumer costs, we need to rethink the policies that limit supply…Responsible refiners make investment decisions every time equipment becomes closer to their end-of-life and requires routine maintenance to sustain safe and reliable production capacity, for example Chevron spends nearly $800 million in annual capital to maintain our refining facilities. These policy decisions can cause the idling of units as refiners consider whether to reduce the ongoing capital needed to maintain capacity infrastructure or pursue opportunities to expand production and capacity in other states.”

(AB) X2-1 legislation draws controversy
The (AB) X2-1 legislation has both critics and supporters. In the press release for the bill from Newsom’s office, a Stanford economist praised the legislation for “being an economically sound policy that addresses an important problem in a well-targeted way [and said that] the additional supply would free up refinery capacity to serve Nevada and Arizona, also reducing prices in these markets. Additional prominent supporters of the bill included local leaders, consumer organizations, environmental advocates, and business leaders.

However, critics of the legislation side with Walz’s letter and Chevron’s position and gathered to share their doubts. In a press conference by the California Fuels and Convenience Alliance, small and family-owned businesses opposed the legislation. During the conference, John Kabatek, California State Director of the National Federation of Independent Business, said, “The regulation requirements in ABX2-1 will artificially create a fuel shortage crisis due to limiting the distribution of fuel. This will unavoidably increase the demand, causing prices to increase.” Additionally, Johnnise Foster-Downs, Vice President of Public Policy at the California Asian Pacific Chamber of Commerce, said, “ABX2 does nothing but disrupt the supply chain for businesses relying on deliveries of goods and services.”

No matter where the market goes, Greg’s Petroleum is here for you
The critics and proponents of the (AB) X2-1 legislation will continue to debate the merits and downsides of this bill. As a fuel, RD99 diesel and lubricant supplier, we know how challenging the rising fuel costs are in California, and we are waiting to see what effect (AB) X2-1 will have on our customers once it’s in place. For now, we’re here to help support your business with the fuel and lubricants you need and provide services like our fleet fueling service, wholesale fuel deliveries and more programs to help you make the most of your fuel and lubricant budget. Contact our team for assistance with any fuel or lubricant needs or concerns.