Why does California pay more for gas? Deep dive on prices here

Tuesday, July 12, 2022

This is what it'll take to bring gas prices down

Why are gas prices soaring, why do Californians pay more, and what will it take to bring prices down? The ABC7 I-Team has a deep dive here.

SAN FRANCISCO (KGO) -- Gas prices are easing a bit because people are cutting back on driving after paying so much at the pump. But prices are expected to climb again this month. We wanted to take a deep dive into the issue: why are gas prices soaring, why do Californians pay more, and what will it take to bring prices down?

The I-Team's Dan Noyes has been poring over the research, speaking to the oil companies, experts, even gas station owners -- and came up with a clear picture of how we got here, and where we're headed.

We've seen gas prices easing. AAA says on Monday, the California average for regular is down 35 cents from a month ago to 6.08 a gallon, but expects it to rise again.

"And July is where we see the highest increase in demand," said Aldo Vasquez with Triple AAA. "It's as more and more people are taking their summer vacations during this time of the year. So, any decrease in the price of gasoline right now may be short lived."

That's our first question: why are gas prices so high?

"Gas prices are so high right now," said Andrew Campbell, executive director for U.C. Berkeley's Energy Institute at Haas. "It's really, really insane."

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Campbell tells us gas prices are the highest ever, even after adjusting for inflation.

"The main driver of gas prices being high right now is high oil prices," he said.

It's simple supply and demand. When COVID hit, people stopped driving, so gas prices fell. When the pandemic eased up, we started driving again and prices began to climb. Then, Russia, which produces about 10% of the world's oil, invaded Ukraine.

"That drove prices higher, especially because a lot of Western countries have stopped buying Russian oil," Campbell said.

Another factor, the condition of refineries that turn crude oil into gasoline, such as those in the East Bay.

"Refineries in some cases had kind of scaled back on maintenance, things like that, during COVID," according to Campbell. "Now, demand is roaring back for gasoline and the refineries are not producing at their full capacity, some refineries have been shut down."

Kevin Slagle represents the major oil companies and refineries operating in our region.

Noyes: "Why can't you just flip a switch and turn them on and get it back to the way it was?"

Slagle: "Refineries are just incredible chemistry sets is what they are. And so you can't just simply ramp them up, it takes some work to get them ready to go."

According to Slagle, companies are reluctant to invest in a state that wants to end sales of gas-powered cars by the year 2035.

For now, Slagle's clients are making record profits. In just the first three months of this year, the top five oil companies (Shell, ExxonMobil, BP, Chevron, ConocoPhillips) brought in more than $35 billion in profits, up 200 percent from last year.

Noyes: Why can't companies take a little less profits and maybe pass on some of those profits to the consumer in the form of lower gas prices?"

Slagle: "Yeah, look, we all feel the pain at the pump, and we and we all get it, nobody wants to pay these prices. So I think when you look at the role of companies in this, number one, we need to provide an affordable, reliable supply and allow that supply to hopefully bring down costs as it grows."

Those oil company profits have the attention of the White House.

On June 20, President Biden told reporters, "My team is going to be sitting down with the CEOs of the major oil companies this week, so I can get an explanation of how they justify making $35 billion in the first quarter."

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We also wanted to find out, do individual gas station owners share in those massive profits? We spoke with Sanjiv Patel, who owns more than a dozen gas stations in San Jose and San Francisco.

Noyes: "Some drivers think you must be doing great, right? Is that the case?"

Patel: "Not really, we would prefer just like the drivers to have low prices."

According to Patel, his profit per gallon stays about the same, no matter how much the oil companies raise prices.

"If you, if you give me $2, and I sell it at $3, I'm making $1," Patel said. "But if you give me at 6.50, and I'm selling at seven, then I'm making only 50 cents, so people think there's a lot more money to be made, but my purchase price has gone up significantly related to what I'm selling."

He also says customers spend less in his convenience stores, when gas prices are high.

California drivers pay more than any other state. Take a look at the latest AAA numbers for a gallon of regular - $6.08 for us compared to the national average $4.67. Texas pays just $4.22.

We spoke with Patrick De Haan, an economist with the price-tracking app Gas Buddy.

Noyes: "Why are prices always higher in California?"

De Haan: "California has myriad taxes, they have a cap and trade program, they have a special blend of gasoline. They're also somewhat of a petrol island."

Look at the chart below, updated weekly, to see the current average gas price per gallon in San Francisco. The recorded averages includes all formulations of regular gasoline on a weekly basis.

Graph not displaying correctly? Click here to open in a new window.

A petrol island. We aren't connected to other oil-producing states by pipelines, so we pump from the ground 30% of the oil we consume, and import 70% from other countries. And that's expensive.

"There's a saying the cure to high prices is high prices," De Haan said. "Why? Because that will incentivize oil companies to produce more oil that will incentivize refiners to refine more oil into things like gasoline, but it does take time for those wheels to be put in motion."

It's not much consolation, but drivers in dozens of countries pay much more than we do -- more than double the cost in some cases.

Noyes: "If you had to get one message across to drivers in California, what would it be?"

Campbell: "Yeah, I think you know, get used to high prices for a while, keep your eye on the global news, that's going to tell you when prices are coming down. And in the meantime, you know, look to save a few cents per gallon anywhere you can by shopping."

Bottom line, we're at the mercy of a global oil market and oil companies that are reaping record profits. Here are links for some of the sources in this story and for the app that can help you find the cheapest gas.