Petrochemical Giant Valero Defends High Oil Prices

Gas prices on the West Coast have skyrocketed this summer, remaining high even as prices elsewhere in the U.S. begin to lower. California has seen the steepest increases, with a rise of over 84 cents in the last 10 days. Recently, Gov. Newsom accused oil companies of price gouging.

The California Energy Commission (CEC) is under fire from petrochemical giant Valero, after demanding that oil executives explain the continuing upward trend in gas prices, despite the declining cost of crude oil.

Scott N. Folwarkow, Valero’s Vice President of State Government Affairs, denied any allegations of “price conspiracies,” pointing out that the increase in demand, coupled with “government-imposed costs and specifications” are to blame for the high prices.

California is famous for its focus on environmental protection, with Californians paying extra state and local taxes on fuel alone–including a “carbon offset fee,” which costs nearly 19 cents a gallon. However, location also plays a factor in how expensive gasoline is in the Golden State, with the Rocky Mountains serving as a barrier for potential pipeline flow.

“When there’s an issue on the West Coast, it can cause a price spike because there’s not a relief valve, so to speak,” Patrick De Haan of GasBuddy said. “If a refinery in the Great Lakes goes down, gasoline can flow via pipeline from the Gulf Coast or the East Coast to the Midwest. California and the West Coast basically have no relief pipeline.”

This means that prices are impacted much more quickly by things like unexpected maintenance. However, there doesn’t seem to be an immediate explanation for the recent price hikes.

"[C]rude oil prices are down and industry profits are up, yet gas prices have increased by a record $0.84 per gallon in 10 days in California – a $2.50 difference compared to U.S. prices," CEC Chair David Hochschild wrote in a letter to executives. "This degree of divergence from national prices hasn’t happened before, regardless of planned or unplanned refinery maintenance, and no explanation has been provided. The oil industry owes Californians answers."

At Valero, Folwarkow pointed to low inventories and growing demand brought on by post-covid travel, stipulating that because California is the "most expensive operative environment in the country and a very hostile regulatory environment for refining," the prices have to reflect the situation. He also argued that the state’s strict carbon cap policies have made it difficult to increase refining capacity and have hindered plans to lower refineries’ operating costs.

Gov. Newsom said in a statement non Friday that he plans to call a special session of the state legislature in December to pass a new tax on oil company profits to punish them for “price gouging”.