Brown acts to halt surging California gasoline prices

By Stuart Pfeifer, Los Angeles Times

Oct. 8, 2012 12 AM PT

Gov. Jerry Brown intervened in the unrelenting climb of gasoline prices by calling for the immediate release of a cheaper, but less environmentally friendly, blend of gasoline.

Brown directed the California Air Resources Board on Sunday to permit oil companies to start selling winter-blend gasoline, which evaporates more quickly in warm weather than the summer blend. Normally, winter blend isn’t permitted to be released until Oct. 31.

The air resources board will follow the governor’s direction and tell refineries and importers that they can start selling the cheaper gasoline right away, said Stanley Young, a spokesman for the agency.

“This would immediately increase the supply of gasoline in California,” said Chris Faulkner, an energy expert and chief executive of Breitling Oil & Gas Corp. in Dallas.

He said the move could cause gasoline prices to drop as much as 15 cents to 20 cents in a week. Motorists probably wouldn’t see a decrease for at least a few days because it will take time for the cheaper blend to move into the market.

“Gas goes up quickly and comes down slowly,” Faulkner said.

Denton Cinquegrana, executive editor of the Oil Price Information Service, said the governor’s move “is not a magic wand that will immediately create all this supply.”

“It’s not going to bring prices down immediately, but it’s going to speed up the process of bringing prices down,” Cinquegrana said. “I don’t think $4.15 or so a gallon by Thanksgiving is out of the question.”

Brown’s move came the same day that the average price for a gallon of regular gasoline in California hit a record high of $4.655, according to the AAA Fuel Gauge Report. The national average was $3.814.

The surge in gas prices has been a major blow to Southern California’s car-dependent culture. Several small gasoline retailers were caught off guard by the rise and stopped buying gasoline, fearful that they could lose money if prices dropped again. Discount retailer Costco suspended gasoline sales at several of its stores, which were swamped by motorists looking for relief from high prices.

“I think that’s great that the governor is stepping up to do something,” said Anna Jerstrom, 38, buying gas at a 76 station Sunday in Los Angeles.

She said she couldn’t wait for prices to drop to fill up her tank. “I have no choice, I have to fill up because I have to drive,” she said.

Analysts attributed the sudden rise in gasoline prices in California to refinery and pipeline setbacks. The most immediate problem was the shutdown of the Exxon Mobil Corp. refinery in Torrance on Oct. 1 because of a power failure. It didn’t resume production until Friday.

Also, a key refinery in Northern California was forced to reduce production in August after a major fire.

The refinery problems came while suppliers were selling the last of their summer-blend fuel in anticipation of the scheduled release of winter gasoline, which is cheaper to produce because it contains additives.

Gasoline can evaporate even from a closed gas tank, according to a report from the Environmental Protection Agency, which said the evaporation “increases as the temperature rises during the day, heating the fuel tank and venting gasoline vapors.”

Environmental groups said the early release of winter-blend gasoline would not significantly increase air pollution levels in California — unless there’s an unexpected heat wave that would cause the blend to release more rapidly into the atmosphere.

“It all depends on the weather,” said Joe Lyou, president and chief executive of the Coalition for Clean Air. “If we have a heat wave after the transition there could be some additional smog problems.”

Barry Wallerstein, executive officer of the South Coast Air Quality Management District, said the effect of the governor’s decision on air quality would be minimal.

David Pettit, an attorney with the Natural Resources Defense Council, also was not alarmed by the governor’s decision.

“It’s another indication of our insatiable demand for fossil fuel and the problems that causes,” Pettit said. “But I don’t think this order is going to cause a big negative impact on air pollution in California.”

Brown said he took the step because record-high gasoline prices were threatening California’s economy. The price increases were particularly painful because Californians already pay a premium for cleaner-burning fuel.

In a letter to Mary Nichols, head of the air resources board, Brown said it was important to act quickly.

“If this situation continues, it may cause unacceptable price impacts for consumers and small businesses, significant economic disruption, and serious harm to public safety and welfare,” the governor said.

He noted that the change in fuels was already scheduled for the end of the month.

“Allowing refiners to make an early transition to winter-blend gasoline could quickly increase fuel supply and provide a much needed safety valve with negligible air quality impacts,” Brown said.

Surging gasoline costs in California have come as the price of crude oil has remained fairly flat for most of the summer.

“The spike is purely related to our supply system in California and our regulatory environment in California,” said Joe Hahn, an associate professor of decision sciences at Pepperdine University. “The governor’s decision is going to help supply. It’s a great move.

“This was all a supply-and-demand thing. The price goes up to curtail demand, but it doesn’t work. People have to get to work.”

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Times staff writers Marc Lifsher and Joe Bel Bruno contributed to this report.