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The higher price paid by California motorists for gasoline compared to the overall U.S. average will likely rise significantly if state lawmakers continue to implement policies to discourage oil production, the Chevron chief said (NYSE: CVX) the refining division told Bloomberg in an interview Saturday.
California motorists paid an average of $4.94 a gallon for gasoline in the fourth quarter of last year compared with the national average of $3.22, in part because the state’s strict low-carbon fuel standards encouraged driving. refineries to switch from oil to renewable diesel, thereby reducing gasoline supply and raising prices, Andy Walz of Chevron (CVX) said in the interview.
The state government “knew this was going to happen when they wrote the legislation,” Walz said, but now “the consumer is starting to realize it. It’s getting painful.”
Chevron (CVX) recently cited tough California regulations in writing down as much as $4 billion in assets, and the latest source of the company’s ire is a proposal to establish a refining margin cap in California; It’s already difficult for Chevron to justify growth projects at its two California refineries — which account for about 30% of the state’s capacity — because of plans to end sales of internal combustion engines in the state by 2035, and Walz has stated that a law that effectively Refinery profit from caps makes them practically impossible.
“If they limit the upside when conditions are good, it will become really difficult to want to put our money there,” Walz said. “I would rather spend money at our refinery in Mississippi.”
Partly to take advantage of government incentives, Chevron (CVX), Marathon Petroleum (MPC) and Phillips 66 (PSX) have converted refineries from gasoline, diesel and jet fuel to renewable fuels, contributing to an 11% reduction in refining of California capacity over the last decade.
According to Walz, refineries are making decisions that “put us on a path where there could be a reliability issue.” “You might not have the petrol supply if things don’t go the way the government wants. It’s a dangerous game.”