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Would a California 'gas bank' reduce price spikes?

Industry groups hate the idea of a reserve requirement, arguing storage is expensive and government interference would only lead to higher prices.
FREDERIC J. BROWN/AFP/Getty Images
Industry groups hate the idea of a reserve requirement, arguing storage is expensive and government interference would only lead to higher prices.

Los Angeles gas prices rose again Wednesday to an average of $4.30 per gallon, up 76 cents from a week ago.

The spike in gas prices – a weekly record dating back to 2000, according to AAA – is the symptom of very tight supply in Southern California.

Supply has been hampered since an explosion at a Torrance oil refinery in February, which forced part of that refinery to shut down. Ever since, Southern California has been more reliant on petroleum imports, which typically arrive by tanker. Oil watchers told KPCC that imports dropped to zero last week when a few tankers that were expected to dock at LA ports suddenly changed course, and delivered their petrol to Mexico because they got a better price there. Since California regulations call for a special blend of gasoline, the state has fewer options to find gasoline supply when times get tough.

Oil analyst Phillip Verleger, owner and president of PKVerleger LLC, an independent consulting firm, has followed California’s gasoline market for decades. He said the state would be wise to reconsider the idea of a “gas bank,” where retailers would be required to store gasoline in bulk. That storage could be accessed when the local gasoline supply dips, to keep prices stable.

“Inventories would be higher, and price increases would be smaller,” said Verleger. 

Because California can't interfere with interstate commerce, Verleger said the state can't force oil companies to store petroleum. He believes this is especially important now because of the growing marketshare in the California gasoline market of independent retailers like Costco and Wal-Mart.

“These companies offer consumers lower prices most of the time, but they don’t hold any inventories,” said Verleger.

Industry groups oppose the idea of a reserve requirement, arguing that storage is expensive, and government interference would only lead to higher prices.

"Imposing inventory requirements means some state bureaucracy will be empowered to decide how much fuel to supply to consumers and how much to hold in reserve," wrote Tupper Hull, vice-president of the Western States Petroleum Association, in an e-mail. "That imposes arbitrary constraints on the market forces that now work very well to keep California’s markets fully supplied with fuel."

California has higher gas prices than the rest of the country because of the state's stringent environmental requirements, says Jay McKeeman, vice president for Government Relations & Communications at the California Independent Oil Marketers Association. He does not think a storage system would help.

"Inventory management is tricky enough at retail, without more complications," McKeeman wrote in an e-mail.

Hoping prices will go down

Whatever it takes, Fullerton-based landscaper, Laurie Ann Malone, just hopes gas prices will go down soon. She says the spike is making her to reconsider what jobs she takes based upon how far she has to drive.

"If someone from Laguna Beach called me, I would probably do some politically-incorrect profiling," said Malone. “I’ll turn things down that I wouldn’t have before."

Malone says her mother is buying some of her gasoline to keep her struggling business afloat.

"But my mom does not enjoy swiping her American Express that often," said Malone.