The closure of the Strait of Hormuz due to the war in Iran threatens California’s energy supply, which heavily depends on imported fuels. The last tanker bound for South Korea to pass through the strait unloaded its cargo at the end of last month: a troubling sign for California, which relies on the Asian nation for jet fuel shipped across the Pacific.
The repercussions of the conflict are set to hit California harder than other U.S. states. The reason lies in the fact that the state imports about 75 percent of its crude oil, and nearly one-third of this comes from the Middle East. Additionally, it receives jet fuel and gasoline from countries whose refineries in turn depend on the flow of oil from the Persian Gulf.
With Hormuz still closed, South Korea and India, two of California’s main suppliers, are drastically reducing exports. If the situation is not resolved soon, the pressure will become extreme, said Andy Walz, head of Chevron’s refining and pipelines sector.
THE PRICE OF GASOLINE IN CALIFORNIA
The price of gasoline has long been a critical point in California. Last Tuesday, the pump average was $5.93 per gallon, over $1.75 above the national average. According to Ryan Cummings, a researcher at Stanford’s Institute for Economic Policy Research, state taxes and fuel standards add about $1.10 to the cost of each gallon.
Chevron and other oil companies attribute the state’s vulnerability to local energy policies, accused of pushing for a transition away from fossil fuels too quickly, causing a collapse in domestic production and the closure of numerous refineries. California’s crude oil production has decreased by over 50 percent in the last twenty years, partly due to aging fields and partly due to companies choosing to invest in regions with less stringent regulations.
A STATE FAR FROM THE SHALE OIL BOOM
The state has remained isolated from the shale boom that made the United States the world’s largest producer of oil and gas. California lacks the pipeline connections necessary to tap into this supply and receives only 0.5 percent of its crude by rail. Moving oil on tankers from producing states like Texas or Louisiana is often more expensive than importing it from the Middle East or Asia.
Although other states, such as Illinois or New Jersey, import significant shares of crude oil, they mainly turn to Canada, Mexico, South America, and Africa. In contrast, the amount of oil California received from the Middle East last year increased by 22 percent.
Even before the war with Iran, California needed to increase imports to fill the gap left by the closure of two major plants: Valero is closing the Benicia refinery this month, and Phillips 66 closed a plant in Los Angeles last year.
Although current stocks may hold until July or August, experts warn that obtaining new supplies from Asia will not be cheap. West Coast buyers will have to offer significant incentives for foreign sellers to undertake high-risk journeys during wartime. This is a huge problem for California, concluded Cummings. The mere fact of having to initiate these trades drives prices up domestically.
(Excerpt from the eprcomunicazione press review)
