Chevron Warns California Facing Historic Fuel Crisis as Diesel Hits Record $7

(Zero Hedge)—The world’s biggest energy execs are currently at the annual CERAWeek conclave in Houston where, understandably, they are dropping bulletin bombs reeking of fire and brimstone, and warning the already critical oil/gas situation will only get worse if the pre-war status quo isn’t restored (which incidentally will be great for their bottom lines… until the world is tipped into a recession).

Take US oil giant Chevron, which warned that California is careening toward an energy crisis because of the Iran war (which will likely be resolved soon), and that the company may quit refining oil in the state unless officials roll back taxes and regulations (which is unlikely to ever be resolved as long as Dems are in charge of the Golden State).

California is highly exposed to the disruption rippling across commodity markets because it imports about 20% of its refined fuels from Asia. But as extensively discussed here, oil product shipments from China, South Korea, Singapore and elsewhere are at risk of slowing significantly as Iran blocks the Strait of Hormuz, leaving Asian nations struggling to meet their own demand at home let alone export to California.

Chevron’s oil refining head Andy Walz said the potential for fuel shortages in California is his worst fear: “We have refineries in Asia that are having to cut crude, and so they’re going to make less products,” Walz said in an interview Tuesday. “What if San Francisco doesn’t have the jet fuel it needs? Or Los Angeles? Or maybe gasoline?”

And as if to confirm his warning, just hours later the price of California Diesel hit a record high just above $7 per gallon, or $7.072 to be precise. 

That topped the previous record of $7.012 in June 2022, in the first months of Russia’s war in Ukraine.

Since California is disconnected from the US fuel-making centers of Texas and Louisiana, it is essentially an energy island. That’s compounded by multiple refinery closures in recent years due to increased costs driven by regulations designed to fight climate change and cap oil industry profits, not to mention the state’s toxic and oppressive regulatory regime.

As a result, California consumers are more exposed than most other Americans to surging energy prices because of the Iran war. They already pay nearly $6 for a gallon of gasoline, compared with a national average of close to $4, due to the state’s ruinous legacy “green” regime. It’s a growing political problem for Governor Gavin Newsom, a Democrat who is expected to run for president in 2028.

“California has decided that they’re going to rely on imports,” Walz said at the CERAWeek by S&P Global conference in Houston. “It’s a dangerous game”, Walz added tongue-in-cheek.

California officials should declare an “energy emergency,” reform its climate and tax rules and promote in-state oil production, Walz said. Without such action, Chevron could quit refining in California within a decade, he said.

A spokesman for California Governor Newsom’s office said oil companies are “cashing in” on the war in Iran and running a “coordinated campaign” to attack California. In other words nothing will change until prices get to be so high, the state’s residents demand change.

“If they’re serious about protecting consumers, they should direct that concern where it belongs: at Donald Trump. There’s no end in sight to Trump’s war taxing American families at the pump,” the spokesman, Anthony Martinez, said in an email, confirming Newsom’s plan is… to pretend there is no problem.

Meanwhile, anyone with a brain can see what’s coming: the problem in California is one of the state’s own making, Walz said.

The Trump administration has already used emergency wartime powers to authorize Sable Offshore, a Houston-based driller, to restart oil production off the California coast. The president has also temporarily waived a century-old maritime law called the Jones Act to help make it cheaper and easier to ship gasoline, diesel and other commodities between US ports.

Meanwhile, California already has the nation’s toughest fuel standards as well as a carbon cap-and-trade program that critics say forces consumers to pay the highest prices in the nation. Its goal to reduce carbon emissions 85% by 2045 relies heavily on a near-complete phaseout of gasoline-powered cars and a large reduction in heavy industry — including refining.

Nonetheless, California remains the country’s second-largest consumer of gasoline and the largest market for jet fuel, for which there’s currently no practical low-carbon alternative. The Democratic state’s recent revulsion toward Elon Musk, and Tesla, has not helped the looming fuel crisis.

“The California intent to offshore carbon to other nations has offshored their security of supply,” Walz said. “They’ve offshored jobs and they haven’t had any impact on carbon.” 

Chevron, which has tankers sitting idle on each side of the Strait of Hormuz, is taking the unusual step of shipping Gulf Coast oil to California through the Panama Canal as the war disrupts shipments from the region that West Coast refiners typically use, Walz said.

China has already imposed a fuel export ban as shipments from the Gulf dwindle. If the Strait of Hormuz remains blocked long enough, other Asian countries could follow suit. Chevron’s scenario planning initially looked at the Strait being closed until the end of March.

“Now our scenario plans are worse,” Walz said. “It’s going to be longer and we’re trying to look around the corner.”

California is home to more than 30 military bases. That includes one of the largest in the US, Travis Air Force Base, which Chevron supplies from its Richmond refinery.

“I think the US government should be concerned,” Walz said.

But wait, there’s more because the state’s green lunatics threaten to make an already dire crisis something truly historic: new emissions rules proposed by the California Air Resources Board, if implemented, threaten to drive costs for the state’s remaining refineries even higher. Chevron estimates the additional expenses could hit $500 million within five years.

“They need to abandon the tax on refineries or they won’t have any refineries in 10 years,” Walz said. “If it stays that way — Chevron will be gone in 10 years for sure. We won’t be able to make it.”

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But it’s not just California that faces a historic crisis: Europe is about to get crushed as well.

According to Shell CEO Wael Sawan, Europe will soon begin to experience the same kind of disruption to fuel supplies that Asia has faced due to the war in Iran in recent weeks. Sawan said the effects of the conflict continue to ripple out across global fuel markets, first in South Asia, then Southeast Asia and Northeast Asia, and increasingly in Europe as April approaches.

“We are trying to work with governments to just alert them to the various levers they will need to pull, including on the demand side, including what they need to do around storage,” he said Tuesday at the same CERAWeek conference.

Just like California, expect Europe to do nothing besides pointing fingers, until it is too late.