http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/24/MN49964.DTL

Crises could compound

Blackouts might wreak havoc on refineries -- and gas prices

Bernadette Tansey, Stacy Finz, Chronicle Staff Writers

Tuesday, April 24, 2001

Angry about $2-a-gallon gas prices?

That price will look like the good old days if refineries are hit by the repeated power blackouts that are expected to roll across California this summer, the industry warned yesterday.

The interruptions that deprogram your VCR or knock the alarm clock for a loop cause much bigger problems at oil refineries that supply Northern California's gasoline, company officials said. Refineries forced into a sudden shutdown for even an hour could be out of commission for days, shrinking gas supplies and leading to higher prices.

"If we crash, we could go down for a week, two weeks or more, depending on whether equipment was damaged," said Scott Folwarkow, spokesman for the Valero refinery in Benicia, which has no backup generators to keep the plant running in a rolling blackout.

The Valero refinery produces 10 percent of the cleaner-burning gas required under California's air-quality laws. Most of that 110,000 barrels per day is sold in Northern California, Folwarkow said, so the effect on prices of the plant's closure would be felt strongly in the Bay Area.

"If we're not careful, we're going to turn the gas and electricity crisis into a total energy crisis, which would include transportation fuels: jet, gasoline and diesel," Folwarkow said.

The area's gasoline prices are already the highest in the nation, and the American Automobile Association said yesterday that they have gone up 13 cents in the past month. The average price per gallon of regular gas in the San Francisco area is now $2.03, AAA said.

The price bump that usually comes with the peak summer driving season arrived a little early this year, but most analysts say that doesn't necessarily signal bigger increases to come.

Unless something goes wrong -- like the major Tosco refinery accident near Martinez and the unexpected maintenance problems at other California refineries that preceded big price run-ups in 1999, or rolling blackouts.

Bay Area refineries were not affected by the blackouts that Northern California suffered in January and March. But the state Public Utilities Commission put refineries on notice April 6 that they could be subject to interruptions during a Stage 3 emergency, Folwarkow said.

BILL TO KEEP REFINERIES HUMMING

Oil companies are pressing state legislators to pass a bill, AB57X, that would put refineries among the last in line for shut-offs in power emergencies.

"There's a concern that if you continue to subject these facilities to rolling blackouts, it could lead to low fuel supplies and high prices," said Lisa Gardiner, legislative aide to Assemblyman John Dutra, D-Fremont, who is sponsoring the bill. "We could have a fuel crisis on our hands."

Even refineries with backup power could lower production if threatened with sudden power blackouts, said Chevron spokesman Fred Gorell. Chevron's Richmond refinery has a cogeneration plant that supplies electricity but also imports power from the grid.

"If we knew we had no relief from these rolling blackouts, it's possible we would have to operate at a level to match our cogeneration output," Gorell said.

Rob Schlichting, a spokesman for the California Energy Commission, agreed that plant cutbacks caused by blackouts could drive up gas prices.

Only 60 to 70 percent of the state's refineries have backup generating plants, he said. And "the rolling blackouts can affect parts of the manufacturing chain outside the refinery itself, like pipelines that bring in crude oil or take products away."

AIRPORT INCIDENT A PREVIEW

The Bay Area saw a dress rehearsal for that kind of disruption in January, when Pacific Gas and Electric Co. interrupted power for Kinder Morgan Energy Partners, a pipeline company serving local refineries. The curtailments, for four days in a row for as long as 18 hours a day, threatened to cause a fuel shortage at San Francisco International Airport, before Mayor Willie Brown and state Senate President Pro Tem John Burton intervened.

Motorists are already feeling the pinch of rising gas costs, even without any help from rolling blackouts.

Mike Burck, an advertising writer, recently bought a Toyota Camry. But he hasn't driven the car in two weeks because of the high price of gas.

"It's $20 to fill the car's tank," he said while pumping fuel into a shiny Harley-Davidson motorcycle in San Francisco's South of Market area. "I can ride the bike for days on only $5."

-- (in@energy.news), April 24, 2001

Answers

Big ol fire in one of So Ca's refineries yesterday. They timed it perfectly to use as an excuse for higher prices for months to come. They *always* use the "refinery problems" defense to justify their corporate greed. Never mind that the price per gallon of gas jumped $.13 in one week *prior* to the fire. Now they get to jack up the price even higher. The oil execs gotta' be creamin' their jeans right about now.

-- Corporate (Greed@CommonManLoses.com), April 24, 2001.

Forget $2.00 at the pump this summer, you forgot to mention the huge Tosco refinery explosion that happened yesterday (south of LA in Carson, I believe). I betcha we'll see $3.00/gallon by July 4th if not sooner.

-- Rob (celtic64@mindspring.com), April 24, 2001.

LOSER --> Corporate (Greed@CommonManLoses.com) <-- LOSER

Skipped out on economics 101, eh shit for brains??

-- (envy@of.the.rich), April 24, 2001.

Envy, if you don't have any "news", stats or anything resembling a modicum of intelligence to add, why don't you go back to the sandbox? The truth is, higher gas prices DO hurt a good majority of household budgets.

-- Reality (Is@Bitch.com), April 24, 2001.

"higher gas prices DO hurt a good majority of household budgets"

This statement is not true.

"For consumers, one of the most telling statistics shows that oil accounted for 6% of all personal expenditures in 1980 but only 2.7% now. This is up from a low of 2.2% in 1998, due to higher oil prices, but far from the severe burden that many are proclaiming....Even if gas prices rise another $.50 per gallon, such that the additional cost for a U.S. motorist that drives 15,000 miles a year in a vehicle getting a modest 20 miles to the gallon amounts to just over $30 per month..." (Brady and Fischer, 9/25/00, Dismal.com)

At the time of Brady and Fischer's essay, SUV sales were up 9.4%, hardly a sign of consumer concern over rising gasoline prices.

The truth is American drivers complain about high gas prices, but do very little about them. Many Americans live in the suburbs, commute substantial distances (alone) and drive inefficient vehicles. They do this because fuel prices are quite low, particularly as compared to the rest of the world. Higher gas prices are an annoyance, but hardly a "budget crisis" for most households.

The price of gasoline in 1950 was 27 cents a gallon. The equivalent price in today's economy is about $1.85. In real terms, gasoline is less expensive today than it was five decades ago.

Rising gas prices perform a vital economic function. Increased costs induce suppliers to add capacity and consumers to seek alternatives. When prices are kept artificially low (through subsidies), the price signal is interupted. The best alternative for the American economy is to allow gasoline prices to rise (and fall) in the marketplace.

-- Jose Ortega y Gasset (j_ortega_y_gasset@hotmail.com), April 24, 2001.

Jose,

Don't expect a left-wing wacko to understand the workings of economic principles like supply and demand. If they demand something, they expect the supply to come from the government.

-- libs are idiots (moreinterpretation@ugly.com), April 24, 2001.

Jose Ortega y Gasset or Decker or whatever you please:

You forget the concept of elasticity in consumer options. For the most part, the only option is the car. We lack a mass transit system and, indeed, our communities are designed so a mass transit system wouldn't work. [Brian and I kicked this one around for a while].

Now, you and I can afford $3.00 a gallon gas; even in my 4X4 pickup. It wouldn't be a massive burden. Not so for everyone. Their option would be to buy another car. One with better gas numbers. We are talking about folks who can't afford $3.00 a gallon fuel. No way they can get a reliable, fuel efficient car. If it computes for you, please explain. This is not an argument but an invitation to discussion.

Best Wishes,,,,,

Z

-- Z1X4Y7 (Z1X4Y7@aol.com), April 24, 2001.

Z or Y or X,

You refer to the price elasticity of demand for gasoline. Your intutive argument is that the price for gasoline is highly inelastic. This is not borne out by the data. A layperon's example is the 1993 case where West Virginia increased the gasoline tax while neighboring Kentucky did not. The gas tax revenues of West Virginia increased, but by far less than if the demand for gasoline had been highly inelastic. There are many studies about the elasticity of gasoline if you are interested.

You raise an interesting point about the substitute goods of gasoline (or the automobile). I suggest there are far more options than you suggest. Common responses to higher gasoline prices are to drive less or become more efficient in "chaining" trips. Rural residents learn quickly the need to plan a "trip to town" when the journey involves hours of driving.

This might surprise you, but "commute trips" are a modest percentage of VMT (vehicle miles traveled). In commuting, people can save money by ridesharing or carpooling... a rather common practice in major urban areas.

In extreme cases, one might choose to sell a large SUV in favor of a smaller, more efficient vehicle. Another solution is to move closer to where one works, shops and recreates.

Mass transit is unpopular in most areas because it is much less efficient than automobile transportation. Consumers add the time it takes to get to a bus stop, the time waiting for the bus, the time on the bus and the time getting from the bus stop to the workplace. Even in the worst congested areas, automobile travel is often much faster. This means mass transit is usually an option for persons who value the low fare over the excess time used.

When you say a person cannot "afford" to pay $3 per gallon for petrol, I think this is a statement of personal sentiment. If the price of gasoline rises to $3 a gallon, consumers will simply need to reallocate resources. As a percentage of budget, gasoline expenditures are quite small... lower than say, entertainment or recreation.

The only way America will move from its dependence on fossil fuels (and the related environmental damage) is to allow prices to rise. Another alternative is to charge the "true" cost of driving at the pump. Either way, we will all pay more for gasoline. Without doubt, the impact will be greater for some than for others. If your concern is for the poor, there are other ways to assist them.

-- Jose Orega y Gasset (j_ortega_y_gasset@hotmail.com), April 24, 2001.

Anyone have any ideas (other than greed) why gasoline is so much more expensive in the San Francisco Bay Area where there are several refineries than it is in Northern Arizona where the nearest refinery is a long ways away? I paid $1.97 for Regular 87 octane in the East Bay last week and then returned to Arizona where I discovered that it is the same $1.57 a gallon that it has been for most of the last year. Perhaps taxes account for some of it.

-- Flash (nazflash@northlink.com), April 24, 2001.

You refer to the price elasticity of demand for gasoline No I didn't. I refered to the elasticity of consumer options. I don't have the reference to the concept on hand. It was from a recent seminar. Sure people who have a 12 mpg Expedition can trade for a Focus. Just bought one myself [no trade, paid cash]. But people with a 20 year old K1500 that gets 10 mpg and is worth less that a $1000 can't do that. We are talking about the elasticity of options [not gas prices]. There are a lot of people who don't live in middle class or wealthy communities that can't do these things. Their numbers are increasing. Generalized statistics don't catch these large number of exceptions.

I was interested in your opinion of the concept.

Best Wishes,,,,

Z

-- Z1X4Y7 (Z1X4Y7@aol.com), April 24, 2001.

The availability of substitute goods is relevant to the elasticity of any good. The elasticity of gasoline suggests consumers are able to reduce their demand for petrol either through conservation or substitution. I gave you several examples of how one might conserve gasoline without the draconian action of selling one's personal automobile.

The fact remains that gasoline prices are lower in real terms than in 1950 while real wages have increased. As you might expect, the percentage of income spent on gasoline is quite small as compared to other expenditures. This percentage has also fallen as indicated in my early citation.

Many people live in poverty, however, the poverty rate has declined during the past decade. "The 1990's economic expansion has also made a dent in poverty rates all around the nation, and a milestone was passed when the poverty rate dropped to 12.7% of households last year, down from a peak of 15.1% in 1993." (Cochrane, 10/21/99, Dismal.com)

"Generalized statistics" is how we do economics and I suggest, a far more reliable method than anecdotal "exceptions." An increase in the price of any "core" good or service inevitably has a greater impact on the poor. Your argument would be far more appropriate for housing where families spend a much greater percentage of income and the subsitute goods are far fewer. It is, after all, easier to share a ride to work than share an apartment.

In short, Z, I think the concept of limited substitutes for gasoline is flawed. Furthermore, I think focusing on a single good (like gasoline) is bad economics. It tempts policy makers to meddle in the marketplace. As petroleum becomes more scarce, we must allow the price to rise. The increased price is exactly what will trigger development of alternatives and force consumers to change behavior.

If you are interested in the impact of inflation on the poor, you are better served by two policies. First, a change in the defintion of poverty is rather badly needed. The current definition of poverty understates the issues. Second, we ought to explore the concept of a "living wage." Please understand that I might criticize meddling in labor markets, however, I think it more appropriate to address poverty holistically than taking a narrow focus on a single consumer good.

-- Jose Ortega y Gasset (j_ortega_y_gasset@hotmail.com), April 25, 2001.