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Bay Area Refinery Malfunctions Lead to Jump in Gasoline Prices

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The Phillips 66 oil refinery in the Contra Costa County town of Rodeo.  (Craig Miller/KQED)

The price of gasoline in the Bay Area increased over the last month because of problems at the East Bay's Chevron, Shell and Phillips 66 refineries, according to a new gas survey.

The average price of a gallon of regular unleaded gas in California is $2.81, said AAA. That's up 15 cents from a month ago. In San Francisco it's $2.94, and in San Jose and Oakland it's $2.82.

The organization's Fuel Gauge Report says many of California's refineries have experienced "degrees of challenges," which have led to the price spike. Those challenges include flaring incidents at Chevron's Richmond refinery, the Phillips 66 facility in Rodeo and Shell's Martinez plant.

"We are an island unto ourselves as far as gas is concerned," AAA spokeswoman Cynthia Harris said of California's gas market. "If there is any kind of interruption, temporary as it may be, it does affect the price of gas because there's speculation that there ... might be a reduction in the supply."

The price hike highlights concerns among energy regulators and consumer advocates that California's gas market is too volatile.


The association did not specify which flaring incidents at local refineries directly led to gas price hikes. And representatives for the three oil companies and an industry group that represents them would not say what kind of impact the refinery problems had on operations.

But the gas price report comes as local air regulators and Contra Costa County authorities have been investigating whether two malfunctions followed by flaring at Chevron late last month led to the release of abnormally high levels of hydrogen sulfide and a sulfurlike odor reported by dozens of San Franciscans shortly afterward.

Chevron would not confirm, though, that those incidents impacted its operations. "The Richmond refinery has continued to supply its customers over the past month," said Braden Reddall, a company spokesman.

Also in late December, a part of the Phillips 66 refinery in Rodeo was shut down. County health officials said a problem at a plant that supplies hydrogen to the refinery caused several processing units to come to a halt. A Phillips 66 spokesman did not return a request for comment.

A week earlier a large portion of Shell's Martinez refinery lost power, leading to a loud flaring operation that sent flames and black smoke into the sky, and prompting an hours-long health advisory.

A report by that oil company revealed that the facility -- in order to relieve pressure -- pushed close to 39,000 pounds of gas, which included hydrogen sulfide, to its flares.

Shell spokesman Ray Fisher described that incident and another flaring operation earlier in December as minor, and did not answer questions about whether they affected work at the refinery.

The head of the industry group that represents oil companies in the area says the increase in the cost of gas is tied to issues particular to California's gas market.

"Recent changes in gasoline prices, while concerning for consumers, are consistent with the increased volatility that has been part of California fuel markets for the past several years," said Cathy Reheis-Boyd, president of the Western States Petroleum Association.

California's high taxes and environmental regulations, as well as its unique fuel blends and isolation from other markets, make the price at the pump here more volatile, according to Reheis-Boyd.

"Gasoline prices are determined by market conditions, which are unpredictable and constantly changing," she said in a statement.

The state's market doesn't have to be so vulnerable, according to consumer advocates.

"It's part of a system that we are used to, but we shouldn't be," said Cody Rosenfield, a researcher at Consumer Watchdog.

A small group of companies have a large amount of control over the gas market in California, according to Rosenfield, and when there's a small refinery problem, pump prices go up.

"It causes a panic on the market, and the price just skyrockets, Rosenfield said.

If just one refinery has a major problem, the wholesale price of gasoline can go up quickly, according to Severin Borenstein, a professor at UC Berkeley's Haas School of Business and a researcher at the school's Energy Institute.

Just the possibility of a change in price can rattle middlemen who buy gas from refineries and sell it to independent gas stations. Fearing a tighter market, those wholesale buyers quickly purchase a lot of gasoline so they don't get caught paying more later. That, in turn, causes the retail gas price to increase days later.

"The wholesale market is going to respond to any information that suggests there might be a disruption in the future," said Borenstein, who also chairs the California Energy Commission's Petroleum Market Advisory Committee.

"There is an ongoing concern about the fact that this market is so tight that even one refinery problem can cause the price to move quite a bit," Borenstein said.

California is segmented away from the rest of the nation's gasoline market because it uses a special blend that's cleaner-burning.

"We have a bigger supply problem whenever we see a hiccup like this," he said.

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