Gov. Schwarzenegger Responds to California Energy Question

Since PTS provides high quality, outsourced engineering and professional personnel to a wide range of petrochemical, power, transportation, and infrastructure related-industries as well as has contracted personnel working at virtually all California refineries, the subject of gasoline production hits close to home for us. Just a few weeks ago, I had the opportunity to attend a town hall meeting in Los Angeles that featured Gov. Arnold Schwarzenegger. During the Q&A session, I was able to ask the governor about California’s increasing demand for gasoline.

Here is my question to the governor in its entirety:
According to the California Energy Commission's Integrated Energy Policy Report of 2007, the 14 California refineries are only producing about 90% of the gasoline needs of our 37 million citizens, with 3.5 million gallons of gasoline per DAY being imported to meet the current demand. The population of California is projected to grow to 44 million in the next 12 years (2020) with the same 14 refineries. In that short 12 year period, our annual consumption is projected to increase from 20 billion to 24 billion gallons of gasoline and diesel, resulting in another 4 billion gallons (more than another 10 million gallons per DAY of gasoline and diesel) being imported.

Alternative fuels have been projected to have minimal impact over the next 20 to 30 years on our total energy demands and population growth, which may grow further to 60 million by 2050. However, expanding refineries to meet the demands of 60 million by 2050 is a BAD business decision for 3 reasons:

1. Companies with billions of dollars are the only ones capable of participating in the high stakes field of building, operating, and maintaining refineries. Such firms are also exposed to international opportunities for projects with better returns on their invested dollars. Performing refinery expansions in California is very expensive with long drawn out processes due huge bureaucracies, thus lowering any ROI calculation to the point that the ROI is not competitive with other international investment opportunities.

2. Any refinery expansion or new refinery to increase gasoline production on this West Coast "island" of California would obviously result in new stacks and increased emissions into the atmosphere that must be mitigated or offset. However, a potential environmental nightmare with the public and government.

3. The public and government already have a negative view of refineries and thus, it also presents a public relations nightmare.

Here is my question:
This is a time sensitive issue. No refineries have been built in the U.S. in over 30 years due to their poor return on investment. In fact, 20 California refineries have been closed down. Given that we will be importing an additional 10 million gallons of gasoline and diesel per DAY by 2020, when can we expect any changes to the California business climate or economic incentives to attract investments into our petroleum infrastructure and to create jobs to meet California's increasing demand for energy?

This was Gov. Schwarzenegger's reply:
He said he was FOR building more refineries (my perception is that we now have 1 person for it among our 37 million citizens).

The governor said he was FOR AB-32 to reduce green house gases (my perception is that this may also reduce current throughput capacities at the existing refineries).

The governor said he was FOR alternative fuels (my perception is that this might help reduce our dependency on oil, but the process is moving slowly).

The governor said he was FOR more efficient cars and electric vehicles (my perception is that this may be a better fix, but it requires changing the mindset of our travel dependency on gas guzzlers).

The governor said he was AGAINST OFFSHORE DRILLING IN SANTA BARBARA (my perception is that he favors our dependency of foreign imported crude oil).


Ronald Stein, P.E.
VP of Business Development
Principal Technical Services, Inc.