The Southern California Gas Price Spike
January 24, 2014 Wisdom from the Downstream Wizard
October 7, 2012
- What happened in the spot market?
- Spot prices started to move up on refinery problems on 9/27.
- By Monday, October 1, the spot was up 30 cpg
- On that Monday, Exxon Mobil’s Torrance refinery lost power due to an equipment failure at Southern California Edison.
- Spot prices rose to 83 cpg to $4.22 by Wednesday.
- On Thursday the market paused and on Friday lost 46 cpg
- The market fell because the distribution system was reacting to the price movement and Exxon Mobil announced that their Torrance refinery was restarting.
- Market reaction moves include barging gasoline from refineries in the Bay Area and Pacific Northwest to Los Angeles.
- Marketers began trucking gasoline from outlying terminals like Fresno and Colton
- Some marketers quit buying gasoline, concerned the price would drop and they would be stuck with expensive inventory
- Several retailers quit selling to unbranded customers
- How did the retail market react?
- Retail prices had been holding steady until the spot started to move.
- Retail prices gained 7 cpg from 9/27 to 10/1
- After the fire, retail prices increased 52 cpg to $4.70 on 10/6
- How will retail prices react next?
- With the spot price coming off, retail prices will come off as well
- Retail prices will be coming down by Tuesday, as the market participants analyze the situation
- Why did it take so long to restart Torrance?
- Refineries have big, complicated process units that take time to bring back on line after a sudden power failure. In addition, the equipment has to be inspected to ensure they were not damaged in the shutdown. The Fluid Cat Cracker, the main gasoline producing unit, typically takes 3 days to restart.
- What other refinery problems are out there?
- Chevron Richmond has been running at low rates ever since the fire in early August
- Phillips Rodeo refinery has its main gasoline producing unit down for maintenance
- Were inventories particularly low?
- No, inventories are low, but about the same as last week and last year at this time.
- What about the waiver to the gasoline specification?
- The California Energy Commission, the Air Resources Board, the US Department of Energy, and the US Environmental Protection Agency have been conferring about a waiver to allow the early start of winter season gasoline blending.
- Winter season blends of gasoline contain butane to improve startability in cold weather. Refiners take the butane out in the summer because it tends to evaporate easily and, in the presence of sunlight and high temperature, cooks into smog.
- Adding butane now would allow the refiners to produce another 8-10% gasoline, or the rough equivalent of adding a refinery.
- On Sunday afternoon, Governor Brown directed ARB to take the steps necessary to allow for the early transition to winter gasoline. This will bring prices down.
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