Industry Opposes Fuel Goal

An oil industry group is urging Gov. Arnold Schwarzenegger to reject a state agency’s recommendation to cut gasoline and diesel use 15% by 2020.

The California Energy Commission, citing uncertainty over future gasoline supplies, has called on the governor to adopt a series of measures to help reduce fuel consumption.

These include encouraging the use of non-petroleum fuels and gas-electric hybrid cars and pushing the federal government to double current fuel-efficiency standards.

The recommendation is included in a Dec. 18 report to Schwarzenegger. The governor has until mid-March to review the report and make his own proposals before forwarding it to the Legislature for possible action.

The energy commission believes the state’s best option is to reduce its dependence on petroleum, whether it’s refined here or shipped in from out of state.

“We don’t think there’s going to be enough fuel,” Commissioner Jim Boyd said, “and it gets more and more risky to depend on such a heavy component of imports.”

The Western States Petroleum Assn. is attacking the goal as foolhardy.

Fuel supplies already are tight in California, giving the Golden State the dubious distinction of having some of the highest retail gasoline prices in the country, the group notes. And encouraging the state to ratchet back use would only worsen the situation by discouraging the oil industry from expanding refinery capacity, the group contends.

“How do you convince a [corporate] board that it’s a good idea to invest in a state that’s eliminating a good chunk of your market share?” asked Joe Sparano, president of the petroleum association.

In a Jan. 8 letter, the group urged the governor to let the free market work to improve the availability of gasoline and diesel in California.

The energy commission rejects the notion that tougher conservation measures will discourage oil companies from increasing production by building or expanding refineries.

“They have not been building for these past decades, as the population has grown to 35 million people,” Boyd said. “Our obligation is to look out for the needs of the state and its consumers, not to look out for what Company X, Y and Z needs.”

Under the energy commission’s plan, cutting statewide gas and diesel use to 15% below 2003 levels would be a goal, with no penalties if it is not met. The goal would be set amid rising demand: By 2020, California will have nearly 46 million residents, up from 35 million today, according to the state Finance Department.

Over the last year, regulators and the oil industry repeatedly have warned that output from the state’s refineries has fallen behind demand and that the market has been increasingly dependent on gasoline imports to fill the void.

The fragile balance between supply and demand was knocked out of kilter twice in 2003, first by a Venezuelan strike and local refinery outages and then by a pipeline rupture in Arizona. In each case, drivers saw pump prices quickly soar to above $2.10 for a gallon of regular gasoline.

With no new refineries built in California since 1969 and no substantial expansions on the horizon, the energy commission believes that the supply struggle will only worsen in coming years. In fact, it will get worse this fall, when Royal Dutch/Shell Group closes its Bakersfield refinery, which supplies 2% of the state’s daily gasoline consumption and nearly 6% of its diesel use.

To help ease the way for more gasoline production and imports, the energy commission also has recommended that the state streamline permitting for petroleum infrastructure projects involving refineries, pipelines and storage and import facilities.

Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, said the Western States Petroleum Assn. letter to Schwarzenegger showed that the oil company trade group “smells an opportunity.”

Court, a longtime critic of the oil industry, noted that a top Schwarzenegger staffer is a former oil company lobbyist and that ChevronTexaco Corp. donated $500,000 to the state Republican party after the governor’s election.

“We’re very worried about what’s going to happen,” Court said. “I doubt anyone who drives a Hummer and takes money from Chevron can be counted on to serve either the consumer or the environment.”

The energy commission’s recommendation is part of the panel’s 63-page Integrated Energy Policy Report, which was mandated by the Legislature after the state’s energy crisis. In it, the commission lays out ways California can help ensure it has reliable and reasonably priced electricity, natural gas, gasoline and other fuels.

Sparano said the oil industry trade group agreed with many of the commission’s recommendations. But “the idea of mandating a reduction in demand,” he said, “doesn’t resonate very well with us.”