California Refiner Margin Penalty Will 'Only Exacerbate' Volatility, Chevron Says -- OPIS

Chevron didn't mince words in criticizing what it called California's "adversarial business climate" when it issued a statement this week opposing the state's proposed refiner profit margin penalty.

"California's policies have made Chevron's investments in its home state riskier than investing in other states, with projects being lower in quality and higher in cost," Andy Walz, president of products at Chevron said in public comments posted to the California Energy Commission's website.

"Chevron alone has reduced spending in California by hundreds of millions of dollars since 2022 ... California's policies have made it a difficult place to invest so we have rejected capital projects in the state. Such capital flight reflects the state's inadequate returns and adversarial business climate."

The company called on the CEC to "articulate a theory" on how a profit margin penalty will solve challenges facing the state's fuel market and suggested such a move will decrease investment in gasoline as well as in renewable energy projects.

Walz also cited "permitting challenges" Chevron has faced over the last year that led to the company canceling "several projects."

"The price spikes and market volatility symptomatic of tight gasoline supply will only get worse (and) this disincentive to California manufacturing will make them more frequent and more disruptive," Walz wrote.

The CEC held a workshop on Nov. 28 to discuss the refining margin and possible penalty in which one presenter said the state's refiners "may be exercising market power."

"California has consistently brought in less crude than it has the ability to refine and that's an indication of an industry that could be exercising market power or at least has some inefficiency in it," said Matthew Zaragoza-Watkins, an economics professor at Vanderbilt University, adding that more data collection is necessary.

He suggested there is a way to structure a profit margin penalty that keeps the industry "attractive to be in (profit wise) but not one that's inherently inequitable."

During a roundtable session at the workshop, Western States Petroleum Association President Catherine Reheis-Boyd said there are no consumer benefits to a refiner profit margin, "only costs" that may lead to decreased production or refiners leaving the state altogether.

Reduction in gasoline supply is the goal, one participant in the discussion said.

"Gasoline supply should go down in the state, demand has decreased 20% in the last five years and at the end of the day we need to transition entirely away from the fossil fuel system to support our climate goals, which includes transitioning entirely away from refineries," said Elena Kriger, director of research at Physicians, Scientists and Engineers for Healthy Energy. "It'unrealistic to think that all of California's refineries will or should stay open."

A workshop that had been scheduled for Thursday has been canceled and will be rescheduled, the CEC said.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by Bayan Raji, [e-mail]; Editing by Jeff Barber, [e-mail]

(END) Dow Jones Newswires

December 14, 2023 13:41 ET (18:41 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.