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California's Limited Energy Supply Options Highlight U.S. Oil Import Dependence
AP on Yahoo ^ | 6/22/06 | Tarek El-Tablawy

Posted on 06/22/2006 12:19:36 PM PDT by NormsRevenge

NEW YORK (AP) -- Just two Arab countries have supplied almost 50 percent of California's imported oil over the past five years, a dependence that leaves the state more vulnerable than the rest of the country to disruptions in the world oil markets.

The finding, based on an analysis of state and federal crude oil import statistics, underscores the challenges confronting both California -- the biggest gas-consuming state in the U.S. -- and the country as a whole as lawmakers grapple with consumer outrage over high prices at the pump and a U.S. deficit that has widened on the back of high crude prices.

"We face a very challenging fuel market here," said Tupper Hall, spokesman for the Western States Petroleum Association, a Sacramento-based industry group. "Unfortunately, the increasing reliance on imports is just one of the acute issues we're confronting," such as pipeline and refinery constraints.

Between 2001 and 2005, Saudi Arabia and Iraq provided an average of 49.6 percent of all the imports arriving in California, according to California Energy Commission figures. That reliance takes on a particular urgency in a market jittery over Iran's nuclear dispute with the United States and uncertain output from war-ravaged Iraq.

On the broader level, those two nations accounted for an average of almost two out of ten barrels of all crude refined in California where prices at the pump are about 30 cents per gallon higher than the national average. Conversely, in the U.S. Gulf Coast where import sources are more diverse, Saudi and Iraqi imports accounted for a five-year average of 25.3 percent of the total imports to that region.

"If you were to have a supply disruption in the Middle East, the West Coast system would have to go through some hard adjustments," said Eric Wei, a Los Angeles-based principal analyst at the energy consultancy Purvin & Gertz. "Although it would not lead to a complete breakdown in the supply system, you could have some decline in crude runs and an increase in costs at the gas pumps in the short run."

Like any market, the imbalance would eventually be corrected. Crude oil could be diverted from the U.S. Gulf Coast, for example, and taken through the Panama Canal, or drawn away from Asian markets. But that would also mean that California refiners would pay even higher premiums than what other markets would pay if there is a supply disruption -- particularly if another hurricane season similar to last year's leads to production shutdowns in the Gulf of Mexico.

"One of the most significant factors contributing to the costs of gasoline in California is the isolated nature of our market," said Hull. "We're not connected through pipelines to the rest of the nation."

Although still the fourth largest domestic producer of crude in the United States, California fields have been declining at a rate of between two to four percent per year, with production now averaging about 700,000 barrels per day. Imports account for roughly 751,000 barrels per day, or 40 percent of total use. Alaskan crude rounds out the remaining 20 percent of the state's needs, according to CEC figures.

The factors that place California at risk -- such as constrained refinery capacity, an inadequate oil and refining infrastructure and largely declining domestic production -- are mirrored on the national level.

Nationwide, imports accounted for about two thirds of the roughly 15 million barrels of oil per day processed in U.S. refineries, according to the U.S. Energy Information Administration. The amount of imports is expected to climb, as domestic crude production has fallen over the past few years. The EIA projects a modest increase next year with the start-up of new Gulf of Mexico fields, but those gains will only temporarily offset an otherwise steady fall.

But Californians are also at the mercy of other factors not present elsewhere in the country, such as a more limited list of crude suppliers, higher gasoline standards and geographic isolation from the pipelines that connect the rest of the country.

"Consumers don't really know what's going on" in the global market, said John Felmy, chief economist for the Washington, D.C.-based American Petroleum Institute. "When you have a fundamental lack of understanding about what is pushing up prices, people will be upset. They need to understand what's driving the market."

While a complex network of pipelines link the U.S. Gulf Coast to the Midwest and the East Coast, California depends entirely on in-state crude or cargos of oil or refined products brought in from overseas -- from a limited number of suppliers.

This places a greater onus on other West Coast states who largely depend on California for their refining needs.

For example, only one pipeline brings in refined products like gasoline and jet fuel from Texas to Arizona, which relies on California refiners for roughly 60 percent of its petroleum products needs, said Rob Schlichting, a CEC spokesman.

"Since 1998, our refineries have not been able to supply all the needs of the states in the (West Coast) region," said Schlichting, adding that Nevada and Oregon also depend on California for nearly 100 percent and 35 percent of their fuel needs, respectively.

To meet the needs of California drivers who, according to the American Petroleum Institute, went through more than 43 million gallons per day of gasoline in 2005, the state -- the U.S.'s most populous -- has had turn to imports.

The increasing dependence on imports of crude oil and gasoline are largely to meet demand that has continued to climb even as the number of refineries producing gasoline in the state dropped from 32 in the mid-1980s to just 14 now -- largely as a result of the state's emission standards, the toughest in the country, said Hull.

"It's the addition of clean burning gasoline requirements that made it uneconomic to invest the billions needed to upgrade refineries," he said.

There are few quick solutions, say officials.

While state officials have pushed for greater conservation efforts, such as promoting and investing in alternative fuels, some industry analysts and lobbyists are voicing growing frustration with what they say is misplaced anger by state and federal officials, as well as the public, who view oil firms as the main culprits behind the tenacious strength of crude oil and gasoline prices.

Over the past few weeks, several state attorney generals have launched investigations into price-gouging, with some accusing refiners of being behind the tenaciously high prices at the pump. The governors of California and Maryland have also asked state officials to examine potential gouging.

"Fifty percent of consumers think (the gains in crude oil and gasoline prices) are all company profits," said the API's Felmy. "As long as you have that lack of understanding, it's an excellent opportunity for politicians to play this bipartisan sport of kicking the oil industry."

TOPICS: Business/Economy; Culture/Society; Foreign Affairs; Politics/Elections; US: California
KEYWORDS: bigoil; california; dependence; energy; highlight; import; johnfelmy; limited; nimby; oil; options; supply
I'd like to take this opportunity to thank the Green movement, NIMBYists and all those who accept campaign contributions from the GReenies and other orgs and those who hold elective offices for blocking the development of available energy resources here at home.

You know who you are.

Your quest to make the world a cleaner place and reduce the effects of purported Global Warming that is supposedly tied to the use of fossil fuels speaks to the motives of the policies you continue to foist on the public in general.

The continued attack alone on further use of nuclear power domestically while it is widely used abroad only reinforces how ill-guided your efforts are.

1 posted on 06/22/2006 12:19:42 PM PDT by NormsRevenge
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To: NormsRevenge
Well, whose damn fault is that?

2 posted on 06/22/2006 12:31:51 PM PDT by Virginia Ridgerunner ("Si vis pacem para bellum")
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To: Virginia Ridgerunner

Thanks and Kudos to Richard Pombo for his continued efforts to inject some sanity into the Offshore Drilling debate.

btw, I am not an opponent to alternative and renewable energy sources and technologies..

But they are not, in and of themselves, going to provide the answers to our energy dilemna that so many make them out to be nor are they necessarily practical anywhere near-term on the scales needed to make them economically viable at the levels needed to sustain our economy and lifestyles we have become accustomed to, imo.

3 posted on 06/22/2006 12:40:26 PM PDT by NormsRevenge (Semper Fi - Wanna help kick some liberal arse? It's not just a job here at FR, IT's an obsession.)
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To: NormsRevenge

"America has no shortage of oil... Washington, DC has a shortage of the political will required to let American workers go get it." -- Rep. Richard Pombo

4 posted on 06/22/2006 12:52:07 PM PDT by thackney (life is fragile, handle with prayer)
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To: NormsRevenge

California's Limited Energy Supply Options Highlight U.S. Oil Import Dependence


We cannot outlaw drilling in large areas of the US and then honestly say we depend on imports.

Worse, it is far less than honest to advocate policy or market distortions based on this fraudulent claim of dependence.

5 posted on 06/22/2006 1:20:07 PM PDT by theBuckwheat
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To: NormsRevenge
We can thank California's liberals for putting our coast here off limits to oil exploration. And they're ones screaming about high gas prices. Well with importation of foreign oil, the dollars flow out of this country. But don't ask me to explain the facts of life to brain addled liberals.

(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")

6 posted on 06/22/2006 10:55:55 PM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)
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