California’s elected officials’ oil policy can be summed up as: leave it in the ground or under the ocean, and, if it must come into the state, don’t use pipeline or rail.
The result of this policy is predictable—an increasing number of crude oil tankers are making their way to California from overseas to meet the state’s need for transportation fuel.
And, unfortunately, the more tankers that ship oil to California, the greater the odds are of an accident that spills a million barrels of foreign crude oil along California’s coast.
While California politicians declare their intention to ween their state off of oil and natural gas, reality—the physics of battery energy storage, the chemistry of energy density, and the economics of both—will dictate that the state will be dependent on fossil fuels for the foreseeable future. And because of California’s anti-oil policies, the state will be increasingly dependent on oil from Saudi Arabia, Ecuador, Colombia, Iraq and others, all offloading onto almost 100 receiving terminals.
In 1986, California produced 403 million barrels of oil, 59.5% of what the state’s residents and industry used. Only 5.7% of California’s oil needs were met by foreign suppliers, with the remainder being shipped down the Pacific Coast from Alaska.
Most of this oil was shipped by pipeline to local refineries. Moving crude oil by pipeline is safer and more efficient than moving oil by train or ocean-going tanker. Further, refining oil in California provides thousands of jobs—while holding to some of the highest environmental standards and among the best safety records in the world. By comparison, in 1986, Texas produced around 819 million barrels of oil, about double California’s production.
Fast forward to 2018 and California’s oil production has dropped by half to just under 200 million barrels. Last year, 57.5% of California’s oil came from foreign suppliers, with another 11.4% coming from Alaska. In contrast, Texas, after hitting a low of 391 million barrels in 2007, has seen production soar to 1.6 billion barrels last year.
Some of the decline in California’s oil production can be traced to geology. Unlike in Texas, California’s 2.2 billion barrels of proved oil reserves reside in a more complex geology that makes its extraction more difficult. And California’s crude itself is heavier and more costly to refine, and thus, usually sells at a discount compared to the more desirable light sweet crude.
But much of the collapse of California’s oil industry can be laid at the feet of California’s business climate which, for manufacturing, and especially for oil production, can be downright hostile.
This is why, in 2014, storied California oil company Occidental Petroleum made the painful decision to spin off its California assets and move the company from Los Angeles to Houston. The nation’s fourth-largest oil company at the time of the announcement, Oxy executives shed their substantial California holdings because California’s regulatory climate is so Byzantine that operating there is unlike any other market in the world.
One example of the challenges of operating in California was seen in mid-2017 when Phillips 66 sought to more than double the number of oil tankers that transited San Francisco Bay to its refinery in Rodeo. The refinery was seeking to raise the cap of 59 tankers per year, a little more than one per week, to 135, for a total of 47.5 million barrels of oil annually. Phillips 66 requested the increase to make up for the deficit of California oil it shipped to the refinery by pipeline.
That Phillips 66 and other refiners needed to make up for the lack of California oil by tankering in more from abroad is commonsense math. However, that didn’t stop local politicians and environmental groups from trying hard to stop it, with the executive director for Baykeeper noting the expansion of tanker traffic “poses an incredible new risk of oil spills to San Francisco Bay.” Which, compared to delivering oil by pipeline (which they oppose) or rail car (which they oppose) is true—the relative risk is higher.
The U.S. Army Corps of Engineers has begun to reduce this risk by dredging the Carquinez Strait in the San Francisco Bay to accommodate larger, more modern tankers. Once complete, this work would reduce both tanker emissions and reduce the likelihood of oil spills. Environmental groups oppose this as well.
That California’s politicians and environmental groups have fought for policies that have increased the Golden State’s reliance on foreign oil imported by tanker is ironic, given that importing oil by tanker generates more emissions than extracting it locally, while also increasing the risk of spills.
Texas and Canada have plenty of oil, but it would take new pipelines to move the product to California’s refineries, and that likely won’t happen in the current California political environment.
Given the foreign beneficiaries of these policies, it brings to mind another unseemly episode from the recent past. Between 2007 and 2012, the Sierra Club took $25 million from the natural gas industry, mostly from Chesapeake Energy’s CEO, and used it to kill coal, natural gas’ main domestic competitor. The question, “Who benefits?” is a valid one—especially since the people of California clearly don’t, paying as they do, a whopping $4.18 for a gallon of gas, the nation’s highest price, a full $1.53 per gallon above the national average.
California’s top air quality bureaucrat recently floated the idea of banning internal combustion engines. And a bill to ban their sale in the state by 2040 was introduced in the California Assembly. Neither idea got far—likely because the one thing most California politicians believe in above posturing for radical environmentalists is getting reelected.
This commentary originally appeared in Forbes on October 7, 2019.