Rush Limbaugh used to say that “the free flow of oil at market prices” is essential for a stable national, and global, economy.
According to Worldometer, global oil reserves today total nearly 1,800 trillion barrels, while consumption is up to about 38 trillion barrels per year (102 million barrels per day). Even if more oil can be discovered, there is a finite amount economically available – but enough to last deep into the 21st century.
While supply is always a localized concern, disruptions to the supply chain tend to be the result of international conflict – or, in the case of California, political decisions aimed at driving away the oil business entirely.
President Obama sought to bankrupt the U.S. coal industry at a time when China and India were building coal-fired power plants at rates Greenpeace would call “alarming” were they in the United States. President Putin, facing sanctions from Western nations, increased sales of Russian oil to China and India to generate revenues for his war machine.
The marketing of oil (and natural gas) has become a battleground on the world stage, with the U.S. and other nations sanctioning oil from nations like Iran and Russia – and, until very recently, Venezuela. Yet wherever legal business is thwarted, many operate outside the law to make a profit despite the risks.
Last December, Reuters reported that more than 30 U.S.-sanctioned oil vessels doing business in Venezuela could face fates similar to that of the first supertanker seized by the U.S. pursuant to sanctions first imposed in 2019.
U.S. officials boarded vessels leaving Venezuelan ports and seized the oil and the ships. After the U.S. used an international warrant to justify arresting the illegitimate President Maduro, Venezuela agreed to transfer $50 million worth of seized oil to partly satisfy outstanding judgments against the Chavez-Maduro regime.
The U.S. is hardly the only nation seizing sanctioned oil. Just last month the Malaysian government intercepted two tankers engaged in a transfer of sanctioned oil from one to the other. The seized crude oil was said to be worth 512 million ringgit (US$129.9 million).
The two ship captains were arrested and turned over to local maritime investigators. The ships, worth a combined 718 million ringgit (US$182 million) and manned by 53 crew members from China, Burma, Iran, Pakistan, and India, were also seized. Many other nations play this game.
President Trump recently cut a new deal with India aimed in part at stopping its oil trade with Russia – part of an effort to bring President Putin to end its war with Ukraine that has disrupted energy flows across multiple continents.
One would think, from these and other machinations over the flow of oil, that ensuring affordable, abundant oil would be a primary concern for every government.
The ugly exception is, of course, the California government, whose anti-oil policies are harming nearby states and, if nationalized, would disrupt both the U.S. and the world economies. There, policies perhaps needed for the 5,000 square miles around Los Angeles subject to heavy smog (but not for residents of the rest of California’s 164,000 square miles) now find lawmakers panicking over oil industry departures.
The anti-oil Union of Concerned Scientists claims that California’s planned petroleum phaseout poses serious challenges are the result of “a gasoline market that is suffering from concentrated market power.” Some California regulations, says the UCS, “are no longer working as designed” solely because of corporate greed.
But California’s war on oil had already shrunk the number of state refineries from a peak of 40 in 1983 to just 11. The Breakthrough Institute says the closure of the Phillips 66 and Valero refineries removes 17.5% of California’s in-state refining capacity.
California is essentially a “fuel island,” as there are no pipelines delivering CARBOB (special California blends sold nowhere else in the U.S.) into the state. The departure of the two majors ensures Californians will pay even higher gasoline prices as they increasingly rely on gasoline shipped from Asia and via the Panama Canal from the U.S. Gulf Coast.
Foreigners already supply 15 to 20% of gasoline used by California drivers, who pay $1.50 or so more than drivers anywhere else in the continental United States. Any disruption in the international supply chain (along with maintenance or accident shutdowns of in-state refineries) can cause short-term price spikes across the state.
Forbes notes that California’s cap-and-trade program forces refineries to buy carbon credits that increase operational costs and thus the price of gasoline. While other regulations add daily costs, California’s response to supply disruptions has led to state lawsuits and even more restrictive legislation – punishing the industry for political mistakes.
Apparently, some streaks of light have reached Sacramento, as in late August the California Energy Commission postponed its plan to require oil companies to pay an excess profits penalty until 2030. The CEC has yet to determine exactly what would be an “excess profit” under the 2022 law pushed by Governor Gavin Newsom after gasoline prices spiked that summer.
Shortly afterward, the California legislature, via Senate Bill 237, authorized heavily Democratic Kern County to issue 2,000 new drilling permits a year without further environmental review for the next decade.
Oil and Gas Watch called the move a ruse to convince refineries to stick around and maybe save consumers a few pennies a gallon and to cover lawmakers’ fear of a consumer revolt against costly “progressive” climate and environmental programs that have sparked a mass exodus.
The California Policy Institute said SB 237 is akin to throwing a bucket of water onto a raging fire. California’s in-state oil production was already down from 402 million barrels in 1986 to just 118 million barrels in 2024, and, as consumption in 2024 was 511 million barrels, the state is importing 77% of its petroleum.
SB 237 cuts off high-value fields in Los Angeles, Ventura, and Santa Barbara Counties from new drilling and does not allow for fracking, which is required for most Kern County wells. Already, says CPI, California’s major north-south pipelines are flowing at rates near the tipping point; they cannot operate at all if the flow of oil falls below 25% of capacity.
Imagine what will happen should just one or two more California refineries throw in the towel.
Despite leaving the state, Phillips 66 has partnered with Kinder Morgan Inc. to propose a 1,300-mile pipeline from Borger, Texas, to Phoenix, Arizona, where it would intersect with a reverse-flow West Line that today runs from Colton, California, to Phoenix. The Western Gate Pipeline, which would deliver 200,000 barrels a day of gasoline, diesel, and jet fuel, would fill a gap in Arizona’s supply chain caused by its dependence on California gasoline.
Or, perhaps, a California refinery might just relocate to a state with less onerous regulations and not a single refinery.
California could just balk at accepting gasoline from less virtuous states. What’s another industry to lose? But it could liberate Arizona and Nevada from dependence on California’s increasingly less dependable politics.
Or, California could give up its war on gasoline.
This article originally appeared at Real Clear Energy