What will the future of gas be for California?

Gas prices are higher than ever, and there’s no telling when they will come back down. According to GasBuddy, in the first week of June this year, the national average gas price in the U.S. passed $5 per gallon for the first time ever. Analysts from JPMorgan expect the national average could surpass $6.20/gallon by August of this year.

We all know there are a lot of factors that go into the price of gas. Right now, record-high prices are driven by increased demand after COVID-19 production shutdowns, the war in Ukraine, and decreased production from OPEC producers. Oil and gasoline supply and demand needs are out of flux, and there is no short-term fix for the problem. Troy Vincent, a market analyst from DTN, says that “we’ve had a supply and demand imbalance for a while, and it will remain.” AAA also said, “This supply/demand dynamic, combined with volatile crude prices, will likely continue to keep upward pressure on pump prices.”

What is the state of prices in California?
Here in California, we’re already feeling the effect of record-high prices. The state’s average gasoline price has surged from $5 per gallon to $6.34 a gallon. In fact, in one state in Mendocino, the listed price was $9.60 per gallon. Yet, despite these record-high prices, demand continues to remain normal. Still, it’s only a matter of time before gas prices force motorists to park their cars and consider alternative forms of transportation.

Where does California go from here?
We know that prices will continue to rise, and right now, demand is still average. But that’s not the only change affecting California’s oil and gas industry. In 2020, Gov. Gavin Newsom gave an executive order to end the sale of gas-powered vehicles in California by 2035. This mandate, one of the first in the world, is expected to increase electric and other zero-emission vehicle says up to 35% by 2026. In May, regulators released a roadmap, the draft 2022 Climate Change Scoping Plan, detailing how these targets could be met by reducing reliance on oil, capturing carbon dioxide emissions, and increasing renewable power sources. The goal is to reduce 91% of the oil used in the state by 2045.

How will California’s plans affect the oil and gas industry?
No one yet knows if California’s plan will work or if it will even pass. But, recently, Catherine Reheis-Boyd, President of the Western States Petroleum Association, representing oil and gas industry participants in Arizona, California, Nevada, Oregon, and Washington, participated in a podcast interview with KQED’s Political Breakdown program. It’s a fascinating listen, and she gives great insight into the energy industry, the current energy policies, and how they affect California. Here are a few highlights:

  • She mentions that California has the strictest environmental laws and standards in the world, which require everything we drill here to be refined and used in the state. Yet producers cannot get permits for new oil drilling projects, which leaves us dependent on foreign energy imports to places without the same environmental standards and increases emissions as the energy is transported here for use. California used to be energy independent, but the current government policies take us away from independence.
  • She believes that the oil and gas industry is the best innovator in the world and that it is possible to produce energy supplies without emissions and for the industry to go carbon neutral. She highlights how many refineries and industrial equipment have switched to new energy sources like renewable diesel and biofuels. She believes there is more potential for future innovative projects if companies have support.
  • Most importantly, the Western States Petroleum Association (WPSA) believes California’s draft plan is not feasible. Reheis-Boyd says the current plan relies on “bans, mandates and regulations that pick winners and losers. A new Scoping Plan needs to take into account how Californians live and not rely on theory and infrastructure that does not exist.” She also emphasized that any energy plan needs to consider a life cycle analysis of how the energy will be used from beginning to end.

What challenges will California’s ambitious plan face?
There are many challenges facing California’s ambitious plan. For one, there still isn’t enough infrastructure to support electric vehicles. It’s estimated that 1.2 million chargers would be needed for the 8 million zero-emission vehicles expected by 2030. Right now, there are only 70 000 though an additional 123,000 are in planning. Consumers may also be reluctant to embrace electric vehicles because of the initial high cost. California’s plan relies on prices coming down for consumers of electric vehicles over time because of reduced fuel bills and lower maintenance needs. California’s plan may face other challenges, including public consultation issues, government cooperation, and industry pushback.

How will my business be affected?
As a small business owner, your biggest concern is most likely the sky-high fuel prices here in California. We’ll still have to wait and see how the Scoping plan will affect individual industries and businesses as they make the proposed switches to meet targets in the future. For now, our concern is how we can best help you manage the rising fuel costs for your business. Here are a few things we can do to help:

  • Join our Fleet Fueling program: Using this program, you can more accurately track your fuel usage, get access to lower prices at 24/7 cardlock fueling sites and get more accurate reports on your fuel usage. As a result, our customers who sign up for this program can better manage their fuel costs.
  • Sign up for remote fuel tank monitoring: As prices increase, so will fuel theft. If you keep fuel tanks for your business, we offer remote tank monitoring systems to help you track consumption and watch out for fuel theft. Using these systems, you can also stay on top of your fuel needs and strategically buy bulk fuel when prices are lower.
  • Oil analysis monitoring: Our oil analysis program is a great way to monitor the state of your lubricant supplies and stay on top of your equipment maintenance needs. Using the data compiled from your supplies and equipment samples, you can create a more robust maintenance program that will reduce expensive downtime and repairs. You can then apply our maintenance savings to offset your fuel costs.

We know that times are tough for business owners right now. Our team here at Greg’s Petroleum Service is committed to helping our customers weather these price increases the best we can. If you have questions about our programs that may help reduce fuel costs, call us!