California's Gasoline Crisis: A Policy Failure at Every Level

California's gasoline crisis is a result of decades-long policy decisions that have left the state vulnerable to increasing oil prices. The state's refineries were built in the late 19th and early 20th centuries to process heavy, highly sulfurous crude oil from the San Joaquin Valley. This geological circumstance set the template for what followed: California's refining equipment is configured for thick, high-sulfur feedstock, making it difficult to accommodate lighter grades of crude oil.

When Alaskan North Slope production declined in the 1990s, refiners required a replacement with nearly identical properties. Persian Gulf crude from Iraq and Saudi Arabia fit the existing equipment with little modification. As a result, California now depends on these countries for approximately 25-30% of its foreign crude imports.

The state operates as an energy island, isolated from the rest of the country's fuel distribution network. California has no major crude pipeline connections to the Gulf Coast, and its mandatory fuel specifications mean that gasoline produced in other states cannot readily serve as a substitute. The Jones Act restricts domestic maritime shipping to U.S.-flagged vessels, further limiting California's ability to source finished gasoline from Gulf Coast refiners.

The combination of these factors has created conditions under which economic theory predicts the exercise of market power and prices in excess of competitive levels. University of California, Berkeley economist Severin Borenstein identified a persistent 'mystery gasoline surcharge', an unexplained price premium ranging from 20-70 cents per gallon since 2015.