Photographer: Bloomberg/Bloomberg via Getty Images

California Fuelmakers Face Gas Cutoffs With Rule in Limbo

  • State considering giving refineries priority for gas service
  • Energy commission identified the fuelmakers as vulnerable

California is warning of power and natural gas shortages across the Los Angeles region as temperatures have soared in the past week, and particularly vulnerable are the state’s oil refiners that depend on both to keep their plants running.

Power and gas disruptions are especially crippling for oil refiners as they can force high-pressure systems offline abruptly, potentially leading to permanent equipment damage. While fuelmakers have been granted exemptions to rotating power outages, they lack similar ones for gas service and a proposal that would’ve given them priority during emergencies is in limbo, awaiting state approval.

At risk are prolonged shutdowns at refineries that depend on gas, both to heat and power equipment and as a feedstock. The outages threaten to create fuel shortages in the biggest U.S. gasoline market, where pump prices are already more than 50 cents a gallon above the national average and environmental regulations make it hard for plants elsewhere to replenish supply. The potential for power and gas service disruptions amid the heat is especially high this summer because of a massive gas leak at a Sempra Energy storage field. Use of the complex has been restricted since late last year.

‘More Volatility’

It takes days for refiners to recover from unexpected shutdowns, David Hackett, president of energy consulting group Stillwater Associates in Irvine, California, said by phone Wednesday. The potential for outages “could lead to more volatility in gasoline prices because of the uncertainty of power supplies.”

The California Public Utilities Commission has been considering a settlement that would maintain some gas flows to refineries during emergencies, but relief probably won’t come this summer, said Edward Randolph, the commission’s energy division director. The agency won’t decide on it “until we have a better understanding of how the system is going to work long-term,” he said by phone on Wednesday.

The state Energy Commission has meanwhile warned that refiners are among those vulnerable to disruptions because of restricted use of the Sempra gas storage site. And their exemption from some rotating electricity outages can’t protect them from unscheduled power failures.

Related: Deadly Heat Grips Southern California, Southwest for Second Day

The heat blanketing Southern California has already knocked out electricity to some. A total of 76,000 Los Angeles Department of Water and Power customers lost power throughout the heat wave with as many as 10,000 without service at any given time. California’s power grid operator asked residents to turn off unnecessary lights and avoid using major appliances to prevent blackouts.

‘Real Impacts’

Exxon Mobil Corp. and Chevron Corp., which own Southern California refineries, didn’t immediately respond to requests for comment. Phillips 66, Valero Energy Corp. and Tesoro Corp., which also own plants in the state, declined to comment.

“Refining facilities are designed to be steady-state by nature,” Colin Maynard, a spokesman for the Western States Petroleum Association that represents fuel suppliers in the state, said by e-mail Wednesday. “Losing access to natural gas and electricity would have real impacts on Southern California refiners’ ability to produce and deliver affordable, reliable energy.”

Special Blend

Compounding the risk is the fact that the state requires its own special blend of gasoline that’s different from what’s sold in the rest of the country. So a fuel shortage at a single plant in California may cause pump prices to surge. Last summer, California drivers paid almost $4 a gallon for regular gasoline, the highest in the country, after an explosion at a refinery run by Exxon near Los Angeles.

Sempra’s Aliso Canyon storage facility, the use of which has been restricted since methane spewed uncontrollably from a broken well for nearly four months starting in October, supplies fuel to 17 gas-fired power plants, large hospitals, oil refineries and other “key parts” of the state’s economy, the state Energy Commission said in a report in April.

The heat, meanwhile, is forecast to linger.

“Our best models suggest the heat will stick around for at least another couple weeks,” said Todd Crawford, a forecaster with the Weather Company in Andover, Massachusetts. “Not necessarily record heat every day, but the pattern strongly suggests above-normal temperatures for quite a while.”

Before it's here, it's on the Bloomberg Terminal.