Monday, November 29, 2021

Skelton: Blame COVID-19 for California’s sky-high gas prices

Who can we blame for record high gasoline prices? Sorry. With no one in particular. The worst culprit is COVID-19.

I would like to blame some politicians like Governor Gavin Newsom.

In the end, this governor does look guilty.

The price for almost any product is based on the principle of supply and demand. And Newsom has declared all-out war on California’s oil production as he leads the state’s fight against global warming.

He ruled that no new gas-powered cars would be sold in California from 2035, and that all oil production in the state would end by 2045. By then, he will be long gone from Sacramento, but it still sends a signal. oil producers that any new investment in California would be tantamount to throwing money down an abandoned well.

The Governor also decided to ban new oil drilling within 3,200 feet of homes, schools and healthcare facilities and to require monitoring of emissions from existing wells in these buffer zones.

But none of this has anything to do with skyrocketing gas prices approaching $ 5 a gallon.

UC Berkeley economist Severin Borenstein says California’s oil production has little or no effect on world oil prices.

“Oil production in California will have little impact on gasoline prices,” he says. They are determined by “world supply and world demand.”

These shocking gas prices were largely set by COVID-19.

When the pandemic struck, millions of Californians and people around the world were locked down and parked their cars. Gas demand dropped to a minimum. Therefore, oil companies have given up on fuel production.

Then the vaccines arrived. Politicians succumbed to public pressure and unblocked people’s lives. Crazy motorists jumped into their cars and went on trips. Gas demand has grown. But supplies were scarce. Oil companies couldn’t – or didn’t want – to keep up with demand. And prices went up.

“When you stop production, restarting is not as easy as turning the switch back on,” says Nick Vyas, executive director of the Institute for Global Supply Chain Management at the School of Business. Marshall USC.

“And this is not only production. There is a long supply chain that takes at least a few months to recover.

“The high cost of gas is primarily the result of disruptions during a pandemic,” says Vyas.

But gas prices in California have always been among the highest in the country and are now at the very top – about $ 1.25 a gallon above the national average, according to American Automobile Assn.

Why are the prices so high here?

Start with the country’s highest fuel taxes. Voters can thank themselves for this. Politicians – mostly Democrats – offered high government fees, but voters approved of them. This is for a good reason: mostly road construction.

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For every gallon of gasoline, motorists pay nearly 67 cents in state and local taxes. In addition, there is a federal tax of 18.4 cents, bringing the total state tax to 85.4 cents.

That’s 29 cents higher than the average taxes in other states, according to the California Energy Commission.

The commission also calculated that oil companies are giving consumers 23 cents a gallon for participating in the government’s climate control and cap-and-trade program, which includes purchasing greenhouse gas permits. Do not ask.

Likewise, motorists receive about 18 cents in costs for companies to meet government low-carbon fuel standards.

And another 15 cents added to California’s special anti-smog blends. This allows southern Californians to see the mountains in the summer.

The oil itself costs just over $ 2. Refining gasoline costs another $ 1 plus. The distribution is about 40 cents.

And there is always a dolt, especially during the holidays.

“Retailers in California charge more than retailers in other states,” says Energy Commission spokesman Lindsay Buckley. “This is a free market.”

More than 6 million motorists are expected to hit state highways on Thanksgiving, according to the Automobile Club of Southern California.

“It’s like a very busy Thanksgiving,” says club spokesman Doug Shoop. “So many people want to be reunited with their loved ones.

“Usually after Labor Day we see pump prices start to drop. But this year they drive through the fall months, visiting friends and family. “

Experts believe that gas prices will remain high, at least during the Christmas and New Year holidays.

The oil industry blames overregulation – a frequent complaint from Californian businessmen – for high production costs, which it puts on the shoulders of motorists.

“We’re not opposed to renewables, but this transition needs to be well planned,” said Kevin Slagle, spokesman for Western States Petroleum Assn. “We don’t see much planning now. Our energetic future seems a little reckless and expensive. And it will hurt people. “

California’s oil production has declined steadily since it peaked at 423 million barrels in 1985. In 2020, 148 million barrels of crude oil were produced, according to CalGEM, the government’s oil industry regulatory arm.

Why decline? One of the main reasons is that after more than a century of pumping, many wells have sucked dry.

“You can only squeeze out that much,” says Uduak-Joe Ntuk, the state oil and gas production supervisor. “And there haven’t been any new discoveries since the 1960s.”

About 70% of Californian oil is produced in Kern County.

California produces 30% of the oil burned and imports the rest, mainly from Alaska.

We fell to the 7th oil producing state, well below the 1st Texas state.

But this has little or nothing to do with the gas price.

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