Energy

California Drivers Pay a Lot for Costly Alaskan Oil


Heading into the Fourth of July weekend, a gallon of regular gasoline on the West Coast averages a penny over $4, the highest price of any region in the country. Costly Alaskan oil is a key factor in these high gas prices, and that oil is gradually running out.

Across the U.S., retail gas prices are the highest they’ve been heading into an Independence Day weekend since 2008—although they have been higher at other seasons in the past six years. Strife in Iraq is one factor propping up the price of crude oil and gasoline. But the surge in domestic crude production and soft demand for gasoline have combined to keep prices from getting out of control. “It’s hardly apocalyptic,” says Tom Kloza, chief oil analyst at GasBuddy.com.

California depends heavily on oil from Alaska’s North Slope and imports from other countries. That Alaskan crude, at $111 a barrel on the spot market on June 30, costs way more than crude from the Bakken Shale ($100), let alone West Canada Select from the Alberta tar sands ($84). The Canadian stuff fetches a lower price because it’s heavy and sour and expensive to refine. The Bakken Shale is a light, sweet crude that’s easy to refine but costs less than Alaskan oil, in part because of the high cost of transporting it to refineries.
 

California refineries are gradually importing more Bakken and Canadian crude because of the price differential—and partly because the Alaskan crude is slowly running out. Output is down by three-quarters from its 1988 peak of 2 million barrels a day. In the first quarter, as Bloomberg News reported, California more than doubled the amount of oil it receives by train, compared with a year earlier. But transporting oil in train cars poses risks. State agencies in California released a report in June that staffing to handle inspections and investigations of railroad operations is “seriously inadequate.”

Coy_190
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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