NGI The Weekly Gas Market Report
The mega-merger candidates in the production industry face anuphill battle in California, according to the state’s attorneygeneral, who promised close scrutiny of their transactions lastweek. With a new study on the causes of a gasoline price spikesthis summer in hand, Attorney General Bill Lockyer said there’s adistinct lack of oil industry competition in the state.
“We are going to pursue the investigation of the petroleumindustry and we are going to carefully scrutinize the pendingmergers of Exxon-Mobil and BP-ARCO to see what we can do to restoremore healthy competition,” Lockyer said. “Our concern is that highgas prices in California are the result of low competition in themarket.”
The report, which was completed for the attorney general’soffice by economists Keith Leffler, Ph.D., and Barry Pulliam,concludes that higher prices for gasoline in California compared toother states are largely the result of three things: theconcentration and control oil companies have over the productionand sale of gasoline; the state’s decision to require clean-burninggasoline; and the state’s relative isolation from alternative fuelsupplies.
Although no charges have been filed against the mergercandidates, Lockyer said both legal and legislative changes wouldbe pursued. He plans to convene a workgroup of experts to developrecommendations for reducing California’s vulnerability to refineryoutages and resulting price spikes, and for changing free marketforces to push down price spikes and increase competition.
“In California, just six companies account for more than 90% ofCalifornia’s refining capacity, and these same six companiescontrol more than 90% of the gasoline sold in California,” Lockyersaid. “The situation is different outside California. In Texas, bycontrast, the top six refiners control less than 58% of capacityand under 34% of the gasoline sold. What the report offers iscredible data and highlights matters deserving more attention.”
The report shows Californians paid an extra $1.3 billion forgasoline from January to August 1999 as retail pump prices climbedto an average $1.317 with the April peak at 43 cents more pergallon than a year earlier. The U.S. average during the first eightmonths was $1.084, with Georgia offering the lowest price at $0.886per gallon.
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