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Out of Gas in the Golden State

Posted By Arnold Ahlert On October 9, 2012 @ 12:47 am In Daily Mailer,FrontPage | 31 Comments

The late Daniel Patrick Moynihan once remarked that “everyone is entitled to his own opinion, but not his own set of facts.” Nowhere does that adage ring truer than in the arena of economics. Yet there is probably no other arena where facts are more susceptible to ideology. Unfortunately for Californians, facts are triumphing.

California is a state where the car is king. Beginning last week, it is now taking the proverbial king’s ransom to fill up one’s gas tank in the Golden State, where a combination of economic facts has sent gas prices soaring. The most salient facts are these: Chevron’s Richmond plant, the largest refinery in Northern California, had a fire on August 6th, and has been running at reduced capacity ever since; last Monday, the Exxon Mobil plant in Torrance that produces 150 million barrels of gas per day had a power outage; and California’s strict pollution controls that require a switch between “summer blend” gas and “winter blend” gas beginning November 1st, has refineries reducing production in anticipation of the mandated change.

Thus, there is a shortage of available gas. That shortage has triggered the most fundamental economic fact of all: when there is less of something, it costs more to get it. In Los Angeles county, gas prices rose 13 cents overnight Saturday. In Orange County, the average price is up 20 cents to $4.65 per gallon. In the Inland Empire, the price is $4.62. In California overall, the average price has hit $4.61, tying the record for the highest price ever in that state.

The shortages have also affected those who sell gasoline at the retail level. Since the refineries have begun rationing their limited supplies, pushing prices up, many gas station owners are faced with a choice–if they have a choice at all. Those with no choice, as in the smaller mom-and-pop stations, who either can’t get gas or can’t afford to pay the higher wholesale price, are simply shutting down. Other stations are buying the expensive gas at the wholesale level, and in turn, trying to pass that price increase on to irate customers, or also shutting down altogether, in order to avoid dealing with the blowback.

Independent station owner Jim Li is a typical example. He told Bloomberg News that he may stop selling gasoline at his independent station, Best Auto Care, in San Francisco, even though he’s charging $4.59 a gallon, because “I’m still losing money,” he said. Li further noted that wholesale prices are “going up so quick that there’s not even any margin to make any money at all.” Sam Krikorian, owner of Quality Auto Repair in North Hollywood, echoed that reality. “We’re going to start shutting pumps Friday,” he said. “Gas is costing me almost $4.75 a gallon with taxes. There’s no sense in staying open. The profit margins are so low it’s not worth it.”  John Ravi, who owns a Low-P gasoline station in Calabasas, California, 30 miles west of Los Angeles, stopped selling unleaded gasoline October 2nd, and ran out of high-octane and medium-octane fuel earlier last week. “I can get gas, but it’s going to cost me $4.90 a gallon, and I can’t sell it here for $5,” Ravi said. “If you come here right now, I’ve got some diesel left. That’s all. My market is open, but no gas.”

The California Independent Oil Marketers Association, which represents independent station operators, is attempting to change one of those economic facts. They have asked the state to grant a waiver and allow the sale of cheaper, winter blend gas to begin now, instead of waiting until November. “Allowing winter gasoline to be used sooner in California will certainly provide additional supply very quickly and that would help with prices,” said Gordon Schremp with the California Energy Commission (CEC). Not everyone agrees with that solution. “Cleaner-burning gasoline, or California gasoline, is a key control measure,” said Bonnie Holmes-Gen with the American Lung Association. “It cuts the emissions that cause smog and send people to hospitals and emergency rooms.”

Thus, once again, we have a difficult choice, not only with respect to the present, but the future as well. In order to provide Californians with reasonably priced gas over the long haul, the facts are once again inarguable: the state needs to build more refineries, pipelines and storage. Yet such facts are in conflict with ideological forces. “The difficulty is that Californians generally love their environment and they don’t want to have facilities that they perceive to be degrading that environment. On the other hand, they want to have cheap gas. So this is a conflict,” said Dr. Dudley Burton, who teaches environmental studies at Sacramento State.

It is a conflict whose current outcome at the very least, was decided long ago. In short, California is the most progressive, tree-huggingest state in the nation, one where gasoline prices have long been higher than the rest of the country. And as much as progressives have attempted to deflect the blame for those prices on “evil” oil companies and their “obscene” profits, or retail gas station owners and their price “gouging,” the economic facts of supply and demand, coupled with the stringent environmental regulations that progressives champion, are unassailable.

For the average Californian, the choice here is clear: if they want cheaper gas, both economic and environmental realities must be addressed, resulting in some sort of reasonable trade-off between the two. For progressives, it’s much more complicated. For years they have championed higher energy prices as a way of forcing American to embrace alternative energy solutions. Thus, if logic prevails, skyrocketing gas prices in California should be embraced by the left. They should have the political courage to tell their fellow Californians to grin and bear it for the “greater good.”

So should President Obama. The man who promised in 2008 to bankrupt the coal industry, and who earlier this year rejected the Keystone pipeline project, should be equally forthright about progressive “solutions” to the nation’s energy problems. He should explain to the American people how pushing for “green” energy solutions that don’t currently exist–even as such pushes by his administration have led to a string of Solyndra-like bankruptcies–is better than pursuing a Manhattan Project-style, no-holds-barred effort to secure domestic energy independence. He should explain why it is better to be beholden to unstable regimes in the Middle East and their environmentally suspect methods for energy acquisition, than well-regulated American energy companies, and job-producing domestic energy projects. At the very least, he should go to California and remind the residents of that state that higher gas prices are an integral part of his progressive agenda.

Make no mistake: what is currently happening to gas prices in California is the eventual end game of progressive policies. And while progressives may be reticent to express their ideological take on such economic realities, those economic realities themselves cannot be denied.

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