"CUMULATIVE IMPACTS OF CALIFORNIA FUEL RELATIONS"
OREGON PETROLEUM ASSOCIATION MEETING
SUNRIVER LODGE, SUNRIVER, OREGON, JULY 30, 2012

Petroleum is a fuel of the future. There is a huge increase in alternative and renewables but they are still a small piece of future U.S. demand.

Oregon's Clean Fuels Program is a low carbon energy standard. Changing the name of the program doesn't change the underlying weaknesses and risks with a low carbon fuel standard. It can be expensive. It has some pretty unrealistic goals. It has some severe ramifications potentially on employment in the state. It it being challenged in the courts as unconstitutional.

We need to engage in this conversation not because we're against alternative fuels — we're not. We just believe that part of these programs are not rational.

We are so concerned in California about the regulations. There are four regulations that are hitting the refining industry at once — including the LCFS, the cap and trade program, and the clean fuels outlet — that are going to have a huge impact.

Plug-in vehicles in residences do not attract people to gas stations and convenience stores. So some gas station owners are interested in hydrogen fueling stations. But mandating companies get in the market if they're not interested, put in the infrastructure and the equipment and pay for it all, just to put in a product they don't want to sell and doesn't work for their plan? It's a lot to ask.

There are 14 refiners in California. If the regulations go forward, we expect 5-7 will shut down in 2015-2016. Of those who remain, they may decide to sell their gasoline and diesel outside the California marketplace. These regulations only affect the company if they sell in California. They can still make fuel in California. But if they don't sell it in California, they don't have to comply.

In California, we use 2 million gallons of diesel every hour of every day — it would be bad if we lost 40% of capacity.

California has the third largest demand for gasoline and diesel, after the United States as a country and China.

The DEQ really has no concept of how the market works, how refiners will respond, biofuel shuffling. If Brazil sends all their sugarcane ethanol to California, then they will replace it with Midwest ethanol and then how does moving all this fuel help carbon reduction? It doesn't.

According to the Boston Consulting Group study, under California's LCFS, refiners will have to recover 33 cents to $1.06 per gallon to cover higher costs associated with the mandate. Compliance costs could be much higher is if the cost of carbon rises.

Brazil will take Midwest ethanol at a lower price and sell us their sugarcane ethanol at a higher price. It's a good deal for Brazil.

The policy decreases our dependence on foreign oil.

The estimated cumulative impacts of California Climate Change policies is $2,500 annually per household plus an annual earnings loss of $900.

It's really the consumers who are the ultimate judge of the success of any of these programs. We expect to be able to get up and turn on the switch and have the lights come on and be able to drive to work, both ways, without disruption and without it costing too much.

I'm now on Twitter. We're doing that because the environmental community has a very active presence on Twitter and they discuss these issues all the time but do you know who is not represented at all? The petroleum industry. You're welcome to follow me at @WSPAPrez.

We're heading for a low carbon future and that's not a bad thing. It's a good thing. We just need to do it in a way that guarantees our energy supply.

I'm very worried about hydraulic fracturing. It's a great new source of energy but there is a full attack against it happening right now.

California adopted the Low Carbon Fuel Standard and is in full-fledged implementation. Oregon adopted it and decided to move forward. They have no refiners in the state. Washington is waiting to see what happens. Do they have to supply the Oregon market? Does Salt Lake City have to spend millions of dollars for the privilege of selling fuel to the Oregon market? They'll have to decide that on their own. I don't know how refiners will react.

In 2009, refiners lost money in California, a lot of money. When they look ahead, these regulations are ramping up. So what happens in California? They don't have to sell the fuel in the state.

CARB says there will be others who will supply fuel to the California market if California refiners won't. But if you sell to the California market, the same regulations are in place. So other refiners won't come in and sell to the California market. Why would they?