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WAR WITH IRAQ

State Considers Establishing a Gasoline Bank

A fuel reserve is one of several ideas proposed to curb large price swings when crude oil supplies run short or refineries falter.

March 24, 2003|Elizabeth Douglass | Times Staff Writer

Should California put a little gasoline in the bank?

As motorists fume at record-high gasoline prices, which soared in advance of war in Iraq, California officials are studying proposals that could help blunt future price spikes and reduce the state's growing dependence on petroleum.

One of the most ambitious options would create a "gasoline bank" that would act both as a reserve supply when refineries falter and as an independent cache of gasoline that could be auctioned daily, damping the major oil companies' hold on California's fuel supply.

Other proposals are aimed at reducing the state's growing consumption of fossil fuels. Ideas include making driving more costly (think higher gas taxes and fees) and offering rebates and incentives for gas-sipping hybrid cars.

Crude oil prices could continue falling this week; on Friday, as the bombing in Baghdad intensified, crude closed at $26.91 a barrel on the New York Mercantile Exchange, down $1.21 on the day -- and far off its $37.83 high reached two weeks ago.

But gasoline prices remain high -- oil companies often take weeks to pass on lower crude prices -- and California officials say the time is right to push for measures that may help shield motorists from soaring costs.

The California Energy Commission and the state Air Resources Board will lay out a package of energy-related recommendations at the end of next month.

The two agencies plan to present a final strategy to the state Legislature and Gov. Gray Davis in June.

"This is probably the most comprehensive work we've done on this issue in the modern era," said Scott Matthews, the commission's deputy director for transportation energy. "There's a huge range of alternatives.... Everything is on the table."

The idea for a state strategic fuel reserve dates to the last gasoline squeeze in 1999, when refinery outages sent California gas prices soaring.

After an investigation into the causes, Atty. Gen. Bill Lockyer declared California's oil and gasoline markets deeply flawed, hampered by anemic competition and unique characteristics that preclude outside aid when problems arise.

Contending that government has a role to play when market forces fail, Lockyer pressed for studies, including one exploring whether a strategic fuel reserve could help stabilize the gasoline market.

Many of the studies were completed in early 2002, though they received scant attention because by then gas prices were back to normal levels.

But the recent price run-up has given new relevance to the proposals. Lawmakers in Washington and Sacramento seem primed to consider bold moves.

"Gasoline is the fuel that drives California.... Naturally, the governor wants to do all he can to prevent the roller-coaster ride in gas prices," said Davis spokesman Steven Maviglio. "The governor will review recommendations from the commission and work with the Legislature on any needed changes in the law."

This week, the commission and the state Public Utilities Commission will send Davis the results of their 15-day investigation into the state's high gasoline prices, as well as lofty natural gas prices. Sen. Barbara Boxer (D-Calif.) asked the General Accounting Office to probe the gasoline situation this month, and last week, Rep. Bob Filner (D-San Diego) introduced legislation that immediately would freeze gasoline prices nationwide and launch an investigation by the secretary of Energy.

"This is the kind of issue that makes or breaks a politician," said Jamie Court, executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights. "Gas prices are being kept higher, in part, by the lack of solutions."

The core problem is that the supply and demand remain so precariously balanced that changes in world crude oil supplies or even the tiniest of disruptions at a California refinery, port or pipeline can trigger wild price swings.

Several key limitations have gradually intensified California's woes -- and frustrated any attempts at quick fixes.

California's rich fields make it the nation's fourth-largest producer of crude oil, pumping out 800,000 barrels a day. And the state's 16 refineries, after importing an additional 1.2 million barrels of crude, produce about 37 million gallons of gas a day. But that's not enough to satisfy California consumers, who use more than 42 million gallons of gas every day.

What's more, California's strict clean-air regulations require refineries to make specially formulated gas for the state market. Because of that, when there's a supply glitch, out-of-state refineries can't send extra supplies without first retooling their plants, -- delaying deliveries by four to eight weeks, regulators say.

"Nobody else in the world makes anything close to what is required here to meet air quality standards," said David Hackett, president of Stillwater Associates, an Irvine-based consulting firm that has conducted studies for the energy commission.

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