Despite having America’s highest proven reserves at over 15 billion barrels of oil, Californians now pay $.72 per gallon more per gallon of gasoline than Texans. Consequently, each driver in California pays a penalty of $326 per year more for gas. For the citizens of the State of California, that burden adds up to $8.2 billion. The state’s falling oil production explains California’s higher gas prices, and why businesses and jobs have “gone to Texas.”
Oil production in California peaked in 1985 and has declined steadily since then. In the last three years, North Dakota on the strength of its fracking boom passed California to become America’s second largest oil producing state. Alaska could also pass California for the third spot in the next few years. Currently, about 67% of California’s energy supply comes from imported crude oil, natural gas, and electricity. The biggest beneficiaries of California shrinking oil production are currently Iraq and Saudi Arabia.
The West Coast has the highest gasoline prices of the seven regions in the United States, according to the Energy Information Administration (EIA). Furthermore, as higher prices decreased travel, California raised its gas sales tax to protect state revenues. California’s gasoline taxes average $0.23 higher per gallon higher than their regional neighbors and $0.28 higher than Texas.
Higher regional prices and higher gasoline taxes have also hammered California’s competitiveness versus Texas. Over the last five years, Texas has grown jobs twice as fast as California and California unemployment has average 50% higher than Texas. While the State of California had an $18.3 billion deficit after raising taxes last year, the State of Texas had a $2.6 billion surplus after cutting taxes by over $1 billion.
The first discovery of oil in the United States took place in the sixteenth century, when explorers noted oil slicks off the coast of California. At the time, heavy oil tar was valued as a sealant for canoes and ships. The Civil War brought demand for distilling oil into kerosene to light military camps. Edward L. Doheny started a boom by developing Los Angeles’s first oil well in 1892. Five years later, there were 2,500 wells and 200 oil companies in Los Angeles. The population of the city grew by 1,000% over the next twenty years as oil established California as the very “Golden State.”
In World War II, California produced 2 billion barrels of oil for the war effort against Japan, and its workers manufactured 17% of all war materials. By the 1950s, the State of California had grown into the largest economy of any state in the nation, and America’s largest exporter. But environmental regulations against oil production in the 1970s eroded the boom, and since the late 1980s oil production has steadily declined.
Twelve years ago, Texas passed California as the largest oil-exporting state, and its lead continues to expand. The most compelling reason to produce in Texas over California is cheap energy costs. Labor averages 8.5% of production costs, but energy is 13% of costs. Given that the profit margins in manufacturing are only, on average, 3.5% of sales, producers can save 1.3% of production costs from cheap Texas energy. That may not sound like a lot of money, but it increases net profits by over one-third. That means Texas manufacturers will pocket about $4 billion extra in profits this year.
Republican members at a hearing of the House of Representative’s Natural Resources Committee last week said California could double production if the State would support aggressively develop its energy resources. “The challenge now is not our ability to find it, it’s the ability of government allowing us to be able to produce it in a sound way,” said Republican Rep. Kevin McCarthy (R-CA), who represents California’s oil-producing Kern county.
California Democrats told the Reuters News Service that it was untrue that the state’s stringent environmental regulations have harmed the state. California Governor Jerry Brown, a Democrat, has said he supports more leasing for shale development if it can be done in a safe manner. Democrat U.S. Rep. Alan Lowenthal (D-CA), whose district includes parts of Los Angeles and Orange counties, added: “In California we try to balance…extraction of resources with the health of our communities and our ecosystems, and we are not going to change that model,” said. He believes there is no law against hydraulic fracking that would block development of the “Monterey Shale” formation, which is believed to hold 67% of all shale oil deposits in America.
If California rapidly develops its huge energy potential, the state will experience one of the greatest employment and economic booms in our nation’s history. Companies are already leaving China for utility costs are 2/3 cheaper in America. If California joins the shale fracking boom, it will once again become the very Golden State again.