Chevron Criticizes California’s Business Climate

by Warren Seah

Chevron, one of the largest energy companies in the world, has strongly voiced its concerns about California’s “adversarial business climate.” In a recent statement opposing the state’s proposed refiner profit margin penalty, Andy Walz, President of Products at Chevron, highlighted the risks and challenges faced by the company due to California’s policies.

According to Walz, California’s policies have made it more difficult for Chevron to invest in its home state compared to other states. He stated that projects in California are lower in quality and higher in cost, leading to reduced spending by hundreds of millions of dollars since 2022. This capital flight reflects the inadequate returns and adversarial business climate experienced by Chevron.

Walz further urged the California Energy Commission (CEC) to clarify how a profit margin penalty would address the challenges facing the state’s fuel market. Chevron also expressed concerns about the potential negative impact on investment in gasoline and renewable energy projects.

In addition to the general business climate, Walz highlighted the permitting challenges faced by Chevron over the past year, which resulted in the cancellation of several projects. He warned that such obstacles, combined with tight gasoline supply, could lead to price spikes and market volatility, negatively affecting California manufacturing.

The CEC recently conducted a workshop on November 28th to discuss the refining margin and possible penalty. During the workshop, one presenter suggested that the state’s refiners may be exercising market power.

Chevron’s statement brings attention to the need for a more favorable business environment in California to support investments and boost the state’s energy sector.

California’s oil refining industry has long struggled to bring in enough crude to meet its refining capacity, prompting concerns about market power and inefficiency within the sector. Matthew Zaragoza-Watkins, an economics professor at Vanderbilt University, believes that more data collection is necessary to better understand the situation.

Zaragoza-Watkins suggests implementing a profit margin penalty that strikes a balance between profitability and equity. It should incentivize the industry to remain profitable without being inherently unfair.

During a recent roundtable session, Catherine Reheis-Boyd, the President of the Western States Petroleum Association, argued that consumers do not benefit from refiner profit margins, as they only result in increased costs. She cautioned that this could potentially lead to reduced production or even refineries shutting down altogether.

Interestingly, one participant in the discussion expressed the goal of reducing gasoline supply in the state. They highlighted that demand for gasoline has already decreased by 20% over the past five years. In line with California’s climate goals, Elena Kriger, the Director of Research at Physicians, Scientists and Engineers for Healthy Energy, asserted that a transition away from fossil fuels and refineries is necessary. She argued that it is both unrealistic and unnecessary for all of California’s refineries to remain operational.

The workshop that was initially scheduled for Thursday has been canceled but will be rescheduled for a later date, as announced by the California Energy Commission (CEC).

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