Will Chevron refinery fire have long-term impact on California economy?
Californians are already the frustrated owners of the highest gas prices in the nation, and things might just get worse. One of the state’s largest oil refineries went up in flames Monday, with a controlled burn to relieve pressure still ongoing. While the long-term effect on the California economy isn't clear yet, gas prices were spiking soon after the news hit.
The Chevron refinery, located about 10 miles northeast of San Francisco in Richmond, produces 150,000 barrels of gasoline a day, good for 16 percent of the West Coast’s daily consumption and 20-25 percent of consumption in Northern California. The fire began due to a vapor leak of hydrocarbons, and it makes for a temporarily crippling blow to a refinery system that leaves the West Coast at risk for oil price spikes due to its isolation and regulations.
“Basically, the pipeline system sort of segments the West Coast from the rest of the United States,” said Dr. James D. Hamilton of the University of California, San Diego. “Typically we don’t get our gasoline from anywhere east of the Rockies. In addition, California has particularly strict requirements for certain types of reformulated gasoline: that’s another thing that makes the market a little bit isolated.”
California has a very limited number of refineries because of strict regulations, community push-back in areas where they would be located, and an energy market that is changing. Hamilton, an expert in energy economics, points to the developing energy world as why California has such a small number of refineries. “It’s very costly to build a new refinery,” he said. “They’ve been trying for years to get one going in Arizona. There’s been a move [by gasoline companies] to make individual refineries bigger instead, on top of which U.S. crude oil production has been coming down.” As alternative forms of energy pick up steam and oil consumption drops, the incentive to create new refineries isn’t worth it in a world where the cost outweighs the benefits.
This leaves California in a tricky situation: if something goes wrong – as we’re seeing with the Richmond fire – the effects can be far reaching. Experts expect the cost of air travel to increase, and some speculate price increases at the pump ranging anywhere from 5 to 40 cents.
But Hamilton isn’t so sure. “I wouldn’t expect a single refinery fire to have a major impact on prices, even though it’s the case where we’re somewhat isolated in California from the national market,” he said. “There are a number of refineries, there’s some excess capacity. I wouldn’t expect this to be a major, long lasting hit to anyone’s budget.”
While Hamilton notes that 150,000 barrels of gasoline a day is a significant amount to take away from the state, he points to other, more sweeping disasters as much more serious.
“Hurricane Katrina a few years ago might have affected something like ten times that amount for a short duration,” he said. “Certainly long term, I don’t expect the fire at the refinery to be a major factor in gas prices.”