California Gasoline Supply to Arizona and Nevada
February 22, 2023
Why do California refineries produce gasoline for California specifications and supply, along with gasoline for the Arizona and Nevada markets? To understand how the California/Arizona/Nevada supply chain works, you first must understand the U.S. PADD distribution system. PADD is an acronym for Petroleum Administration for Defense Districts. They are geographic aggregations of the 50 states originally established in World War II by the Petroleum Administration for War to ration gasoline and are now used to analyze patterns of crude oil and petroleum product movements throughout the region.(1) PADD 5 includes mainland states: California, Arizona, Nevada, Oregon, and Washington; as well as Alaska and Hawaii. The PADD 5 mainland is generally referred to as the United States West Coast (USWC) and has three concentrations for refining located in Los Angeles, San Francisco, and the Pacific Northwest. Refineries in San Francisco supply gasoline to Reno, NV via pipeline. Refineries in Los Angeles supply gasoline to Las Vegas, NV and Phoenix, AZ via pipeline. Supply used to be sent via railroad tank car because the crude oil and refineries were in California. As demand grew, pipelines were built, and the refineries grew to supply the demand. Land-locked refineries in Salt Lake City, UT provide a base level of supply into Nevada and refineries in El Paso, TX supply product into Arizona. California has always bridged the gap to fill the demand for Nevada and Arizona. California supplies about 33% of the Arizona demand and 88% of the Nevada market. The supply flows into Nevada and Arizona are illustrated below:
San Francisco and Los Angeles both send supply via pipeline into Nevada. Only Southern California supplies the Arizona demand that El Paso does not cover. If California were not able to meet the demand for gasoline in Nevada and Arizona, gasoline could be imported to those states, but it would still have to come into a California port and be transported through the same pipelines – requiring much more time and money.
The gasoline supplied in California does have different regulations than that in Nevada and Arizona. California has the strictest regulations in the country, with the goal of reducing air pollution. These regulations require that California gasoline have very low aromatics, low sulfur components, and low Reid vapor pressure (RVP). Nevada gasoline is known as conventional gasoline. Conventional gasoline is generally easy to produce, does not require the same stringent specifications as California gasoline, and is a typical product for most refineries. Arizona has its own set of unique regulations. In the summer they require reformulated gasoline, which is used in the rest of the country – particularly in urban areas where there are smog issues. In the winter they require a boutique fuel which is a modified California phase 2 gasoline (AZRBOB) and is easier to produce than the gasoline required in California (CARBOB). CARBOB is capital-intensive, so California refiners will produce enough to meet their contractual commitments – which meet local demand – and produce the less capital-intensive products for the Arizona and Nevada markets. The California refining fleet is not capable of making all CARB gasoline.
The gasoline exported to Nevada and Arizona from California is really an extension of the California demand. Outside of California, Salt Lake City and El Paso refineries will be the first choices because those are the cheaper delivery options, but there isn’t enough refining or pipeline capacity to meet all the demand. California refineries provide the remaining demand to maintain a balance in the market. If supply to Nevada and Arizona is cut from California, the cost of gasoline in Nevada and Arizona would skyrocket and other refineries would find a way to get their product there to meet the demand. Because the California refineries cannot make 100% CARB gasoline, any non-CARB gasoline would have to be exported or refiners would have to reduce crude oil processing – which would reduce jet and diesel supply as well. Maintaining a balanced supply between California, Nevada, and Arizona is taken into account by California refiners when planning for production. The charts below show the most recent full years of data available from the California Energy Commission. They show southern and northern California supply/demand balances, pre- and post-pandemic, from 2019-2021:
Southern California production has returned to pre-pandemic levels. Northern California switched from being a net exporter to net importer following the pandemic (due to the closing of a refinery). Gasoline exported to Nevada and Arizona from Southern California remained steady through 2019-2021 making up 15% of total production in 2019 and increasing to 17% in 2021. Gasoline exported to Nevada from Northern California also remained steady making up 4% of total production in 2019 and increasing to 5% in 2021. Total gasoline exports to Nevada and Arizona in 2021 made up 12% of production. Total gasoline exported from California in 2021 was 148 kbd, with 118 kbd going to Nevada and Arizona. So, 80% of gasoline exported out of California goes into the Nevada and Arizona markets. The remainder mostly goes to nearby Latin American markets. These charts show that local California production, along with imports, are sufficient – and needed – to supply both local demand and the Nevada and Arizona markets.
(1)“TODAY IN ENERGY: PADD regions enable regional analysis of petroleum product supply and movements.” Energy Information Administration. February 2012
Correction: The original version of this article stated that total gasoline exports to Nevada and Arizona in 2021 made up 22% of production. The correct number is 12% of production.