Russ Steele
That is an interesting question. To answer it we have to explore why are the oil refiners, Tesoro Energy and Valero Energy, and oil producers like Occidental Petroleum, Berry Petroleum and Venoco are supporting Prop 23 in the first place.
The proponents of AB32 are hoping its draconian measures will stimulate the creation of a clean-tech revolution in California. But, will business subject themselves to the increased cost of low carbon fuels, or will they just pack up and leave California for more business-friendly states like Texas, who would be happy to have them. According to the LAO, AB32 will result in multiple companies leaving California, resulting in a net loss of 10,000 jobs.
According to an article in Forbes:California’s oil producers and refiners are convinced that the bill will hurt their business by forcing the adoption of cleaner fuel blends and higher mileage cars and putting a high price on their carbon emissions. Refiners would have to invest in costly new equipment only to sell less gasoline.
What happens to California drivers and small businesses if is the refiners and the oil producers, just decide they are going home to Texas. Where will all that ultra-clean gasoline come from once many of California’s oil refineries have been driven out of business or back to Texas?
One has to remember that when California mandated MTBE, it drove many of the small refiners out of business, or out of California. They could not afford to re-build their plants to meet California requirements. They just tossed in the towel and went our of business, or left the state.
The same could happen here under the draconian rules in AB32, although Valero is a major industry in California with two refineries and 83 company-owned retail stores in the state. These facilities supports about 800 privately owned branded wholesale locations in the state, employing 1,600 people with an annual payroll of $122 million.
Valero has a vested interest in California’s continued economic strength, but at some point the cost of doing business in the state could overcome the economic benefits. Valero posted modest earnings in the second quarter of 2010, but in 2009 the company suffered a net loss of $2 billion, after losing $1.1 billion in 2008. Tesoro lost $88 million in the first half of 2010.
The refiners are on the razors edge. Re-tooling to produces the ultra-clean fuel blends may cost them more than they are willing to pay. What then?
If major fuel refiners and producers leave the state, the price of fuel will leap to unprecedented levels. Thus, it is in our best interest to keep these producers in the state.
