Bob Tippee
Under direction of the state legislature, the California Energy Commission last month held workshops to consider a government stockpile of gasoline.
The aim is to moderate price volatility. A consulting firm recommends the state hoard 2.5 million bbl of summer grade gasoline for release during supply disruptions as a defense against price spikes.
The state would store the product outside Los Angeles and San Francisco. It would control 5 million bbl of storage capacity and lease the extra volume to private firms.
Companies would withdraw and repay gasoline from the state reserve for a fee determined by electronic auction.
California thus seems ready to extend its astonishing record of disastrous decisions about energy.
Indeed, the state's gasoline market is peculiarly vulnerable to supply disruption. Small upsets cause large price jumps.
Geography and unique fuel specifications isolate California's gasoline market. Demand exceeds refining capacity. Imports face bottlenecks.
The proper solution is a combination of more refining capacity, encouragement for nearby production of crude oil, and relaxation of gasoline standards.
California will have none of that.
If it won't do what's right, however, it certainly shouldn't do anything else wrong—like hoarding gasoline.
The consulting firm estimates the reserve would cost $25 million/year to operate and save consumers $250 million/year.
That's wildly speculative. Prices fall as well as rise. If a buffer supply succeeds in flattening the price-vs.-time curve—which it probably cannot do—it lops off troughs as well as peaks. So where are these savings?
Californians should doubt the savings claim. It comes from economic theorizing to which real markets pay little heed.
And before Californians agree to give the state a role in the gasoline market, they should consider what their state has paid to salvage an electricity market it ruined with loopy regulation.
Costs of that mistake feed a $35 billion budget deficit that should make the government reluctant to spend $25 million/year on another market foray.
State-owned gasoline stocks promise only a fanciful sense of security, one of the few things about energy for which Californians have more than they need.
(Author's e-mail: [email protected])