The average price for regular gas in California now stands at $4.67 a gallon, a record for both California and the nation. The spike is a function of low gasoline inventories and recent supply disruptions. California's refinery market is already too small— 14 refineries power the world's eighth largest economy. If Tesoro's $2.5 billion offer to acquire BP's refinery in Carson and ARCO stations is approved by California Attorney General Kamala Harris, market concentration could lead to even higher prices, said Consumer Watchdog in a letter today.
"If the purchase goes through, Tesoro and Chevron will between them own more than half of California's fuel refining capacity, including the three largest refineries in the state," the letter said. "California's drivers and the state economy will pay the price for this merger at the pump. We ask you to halt it on antitrust grounds."
California gets most of its gasoline from its own refineries. Refineries in other states generally don't produce California's special blend of gas. "It is in refiners' self-interest to restrict production and supply, taking higher profits from selling less but more expensive gasoline," the letter continued.
Overly low inventories and supply disruptions at Chevron in Richmond, which experienced a fire in August, a Chevron pipeline shutdown, and a power outage at Exxon Mobil's Torrance refinery last week, are all driving prices skywards.
On top of that, refineries export gas, squeezing supply still further. More than 10 percent of the million barrels a day of gasoline produced in the state was exported last year, according to the California Energy Commission.
Consumer Watchdog's decade of research into the market concentration of refineries in California shows a history of industry efforts to restrict and reduce the number of refineries, their output, and supplies on hand to increase profits. In 2004, Shell Oil was forced to sell instead of shutter its Big West Refinery in Bakersfield due to pressure from consumers and then Attorney General Bill Lockyer.
Tesoro estimates that it could save $250 million a year by combining operations between its Tesoro refinery in Wilmington and BP's Carson plant. "That might be great for Tesoro, but it's a travesty for consumers," said Liza Tucker, advocate with Consumer Watchdog. "It gives Tesoro a reason to cut output and drive up gasoline prices all under the guise of eliminating so-called redundant refinery operations."
The purchase of ARCO stations would tip Tesoro into the top slot for control of retail gas locations. Tesoro already controls Shell-branded southern California gas stations, plus Tesoro, USA, and Thrifty-branded stations statewide. "Goodbye ARCO stations as the state's lowest priced sellers of gas," said Tucker. "As long as California doesn't have control over refinery output or supply, mergers like these should be blocked. Period."