California Gasoline Market
California's gasoline market has been characterized by high gas and diesel prices and recurrent price spikes. These events arise largely because California is a "gasoline island," cut off from supply from states east of the Rockies due to lack of pipelines and the necessity of bringing most imports through the Panama Canal. California, despite its burgeoning population, is largely dependent on a relatively static supply of refined product produced by instate refineries. When a refinery goes down, or a pipeline cannot transport fuel, price spikes occur.
For the last decade, the Attorney General has kept a regulatory eye on the California gasoline market. The Attorney General issued two comprehensive reports about the above-described factors, as well as high crude prices, the shrinking number of oil companies in the market, and the replacement of gasoline additive MTBE with ethanol to meet federal Environmental Protection Agency requirements. The Attorney General continues to monitor the market for instabilities and unfair business practices.
The Attorney General has sought, to the extent possible under existing laws, to keep the marketplace from becoming even more concentrated and less competitive because of oil company mergers and anti-competitive practices. Giving close scrutiny to oil-company mergers, the Attorney General led a successful effort in which California was the only state to secure divestiture of refineries in the $81 billion Exxon-Mobil global merger. The Attorney General also required concessions aimed at preserving competition in the Texaco-Shell, Arco-BP, and Chevron-Texaco mergers. In response to terms imposed by the Attorney General in the Valero-Kaneb merger, Valero built new tank storage equivalent to 900,000 million barrels, freeing up an equal amount of third-party storage.
One other matter of significance is the Attorney General's role in keeping the Shell Bakersfield refinery from being consigned to the scrap heap and sold for parts, as Shell had proposed. The Attorney General worked assiduously to line up a buyer for the refinery so that it could continue in operation. Title to the refinery was passed successfully to Big West in mid 2005. Big West has gone on to operate the refinery and supply needed gasoline and diesel to the San Joaquin Valley.