California governor Newsom aiming to tackle price hikes with law could pave the way for soaring gas prices, a giant oil company warns.
A Costly Move?
As one of the world’s premier oil companies, Chevron revealed in a securities filing that California’s regulations could negatively impact its fourth-quarter 2023 performance. The company also hinted that Governor Gavin Newsom’s approach might increase gas prices.
Landmark Big Oil Law
In March 2023, Newsom, surrounded by legislators and community figures in the California State Capitol’s rotunda, signed a bill introducing unprecedented state-level oversight and accountability for “big oil.”
Chevron Warns
Newsom, vowing to tighten control over “big oil” in California, stated: “With this legislation, we’re ending the oil industry’s days of operating in the shadows. California took on Big Oil and won. We’re not only protecting families, we’re also loosening the vice grip Big Oil has had on our politics for the last 100 years.”
Yet, Chevron implies these policies might hamper their operations in the state.
Investment Plans Hit by State Laws
In a notice dated January 2 to the U.S. Securities and Exchange Commission, Chevron highlighted that regulatory hurdles in California are set to affect some of its U.S. upstream assets, mainly in the state, due to ongoing “regulatory challenges” leading to reduced future investment plans.
$4 Billion Regulatory Cost
This development will have a monetary impact on Chevron’s operations, with the company anticipating “non-cash, after-tax charges of $3.5 billion to $4 billion in its fourth quarter 2023 results.”
Chevron Foresees Fuel Price Hike
In a letter addressing the California Energy Commission, Andy Walz, President of Chevron’s Americas Products, voiced concerns over Newsom’s legislation, suggesting potential penalties from the new law might drive up gasoline prices.
“Frequent” and “Disruptive” Price Spikes
“The state has long pursued a set of policies to reduce demand, increasing gasoline prices to change consumer behavior. California has used all these policy levers simultaneously in a manner that has raised retail costs for gasoline,” Walz wrote.
He further noted that the negative impact on California’s gasoline production might lead to “more frequent and more disruptive” price spikes.
$4.7 Per Gallon
As of January 5, gas prices in California have been significantly higher than the national average, with a gallon costing $4.7, over a dollar more than the national average of slightly above $3.
Gas Price Rollercoaster
Back at the end of 2020, the state’s average was at $3.1, according to the U.S. Energy Information Administration. Prices soared, reaching around $6.3 per gallon in June 2022, before beginning a decline.
By December, prices fell to $4.56, still higher than the national average of $3.26.
Cracking Down on Oil “Price Gouging”
The legislation endorsed by Governor Newsom last year aims to set up an independent body dedicated to identifying and combating “price gouging” by oil companies. It supposedly empowers the California Energy Commission (CEC) with the authority to devise a penalty system to hold the oil industry accountable.
At a Sacramento state Capitol signing ceremony, Governor Newsom confidently stated, “We proved we can actually beat big oil.”
“Crosshairs” on Oil
In contrast to Governor Newsom’s optimistic view, Kevin Slagle, a spokesperson for the Western States Petroleum Association and the primary lobbyist for the industry in Sacramento, conveyed a different perspective.
Newsom’s argument
“The governor has put this industry in the crosshairs” for several years…With a supermajority and the ability of governors to pull levers with legislators, it’s a tough policy environment for us for sure,” he argued.
Newsom Calls Out “Lying”
Gov. Newsom’s response to the alarming surge in gas prices signals a virtual declaration of war on the oil industry, accusing some oil companies of “lying and gouging Californians to line their own pockets.” Newsom contends that these profits were, to some extent, made at the expense of California drivers, who he believes were unfairly overcharged.
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