By Ronald Stein
California just experienced a catastrophic loss from the COIVD-19 impact on the economy, as one of its major refineries, Marathon Martinez, has just announced it will be idled indefinitely.
With airlines and cruise ships virtually shut down, and vehicle transportation at an all-time low, the demand for fuels and petroleum derivative products manufactured from petroleum, are at an all-time low, the Northern California refinery, one of the largest in the state has just become a COVID victim.
We have all seen the photos of those foreign tankers with crude oil parked off the coast of California as the refineries had no use to manufacture products that were in limited demand. With in-state crude oil production at an all-time low and going lower with pressure from the Governor, California’s dependency on other suppliers has increased imported crude oil from foreign countries from 5 percent in 1992 to 58 percent today of total consumption. The imported crude oil costs California more than $60 million dollars a day, yes, every day, being paid to oil-rich foreign countries, depriving Californians of jobs, careers, and business opportunities.
The future looks very bleak for ALL 40 million residents of the state as the economy starts to recover back to near-normal fuel demands for the 5th largest economy in the world. The near-normal daily energy use for California’s 145 airports (inclusive of 33 military, 10 majors, and more than 100 general aviation) was 13 million gallons of aviation fuels, or one-fifth of the nation’s jet fuel consumption. California’s 31 million registered vehicles were consuming 10 million gallons a day of diesel and 42 million gallons a day of gasoline.
Collectively, that is about 65 million gallons of various fuels needed daily to run the CA economy, but now with Marathon Martinez out of business the future supply may not be able to meet the demand.
The immediate impact on the California economy will ONLY be 1,000’s of jobs, most of Marathons’ 700 employees and those of the companies that have been providing products and services to support the refinery. Most of the 40 million residents of the state will not be impacted immediately, but later. As we recover from the pandemic, the economy demands for fuels will not be readily available.
With the state being an energy island and an energy hog, California is heavily dependent on in-state manufacturing for its fuel demands. California is an “energy island” situated between the Pacific Ocean and the Arizona/Nevada Stateline, with no existing pipelines over the Sierra Nevada Mountains. The state is inhabited by roughly 40 million citizens and is an energy hog demanding more than 65 million gallons of various transportation fuels daily from suppliers to drive (no pun intended) the 5th largest economy in the world.
Californians already pay almost $1.00 more per gallon of fuel than the rest of the country due to a) the state sales tax per gallon which are some of the highest in the country; b) refinery reformatting costs per gallon; c) cap and trade program compliance costs per gallon; d) low-carbon fuel standard program compliance costs per gallon; and e) renewable fuels standard program compliance costs per gallon. With the future supply unlikely to meet the states’ demands, fuel prices will most likely rise further, just for the 40 million residents of the state.
Over the years, we have all seen the impact on California fuel prices when one of the few refinery manufacturers goes down for maintenance, or what the industry refers to as a ’turnaround’. Gas prices spike during these temporary outages, but with Marathon going idle indefinitely, the outage will NOT be temporary, but permanent.
Ironically, it wasn’t the bizarre laws and regulation from the AQMD, or the union labor agreements, or the other business unfriendly regulations, but COVID-19 that will impact the state for the foreseeable future. Hispanics and African Americans that represent 45% of the 40 million residents of California are some of the folks that can least afford more expensive energy in perpetuity and make California’s economic recovery from the pandemic even more challenging.