Soaring Tanker Costs Strengthen the Case for California Oil Production

A new Extracting Fact article highlights another vulnerability in California’s growing dependence on imported crude oil: the escalating cost of getting that oil here. International shipping disruptions and constrained tanker availability are driving transportation costs sharply higher, adding pressure to the delivered cost of crude purchased by refineries. For CIPA, the implications are clear. California should expand responsible local production to reduce its exposure to expensive and increasingly uncertain overseas supply chains.

Drawing on reporting from The Wall Street Journal and Bloomberg, the article describes extraordinary conditions in the global tanker market. It cites Baltic Exchange data indicating that shipping fees can now account for approximately 25 percent of crude costs, compared with roughly 5 percent in recent years. Those figures describe international market conditions rather than a uniform surcharge on California shipments, but they illustrate the financial exposure created when refineries depend heavily on seaborne supply.

California Can Reduce Its Exposure

California cannot control international freight rates, overseas conflicts, or competition among countries for available tankers. It can, however, change policies that prevent its own producers from supplying more crude to local refineries.

Increasing responsible California production would allow additional barrels to reach those refineries without an overseas voyage. Where local production replaces imported cargoes, it can reduce exposure to ocean freight charges, maritime insurance premiums, shipping delays, and competition for vessels. Local transportation still carries costs, but California-produced crude does not need to cross an ocean before entering the state’s refining system.

Additional domestic production would not insulate California from global oil prices. It would provide a practical way to reduce one important layer of cost and supply uncertainty. Restricting that opportunity while accepting greater import dependence leaves California consumers exposed to risks that state policy could help mitigate.

Preserve Production and Refining Together

The shipping-cost warning reinforces the recommendations CIPA delivered during its October 20 meeting with the California Energy Commission regarding the developing Transportation Fuels Assessment. CIPA urged the commission to broaden its supply solutions to include increased in-state crude production and to prioritize keeping every currently operating California refinery open and operational.

Those objectives are closely connected. Refineries need reliable, competitively priced crude, and California producers need operating refineries to manufacture their oil into gasoline, diesel and aviation fuel. A stronger local supply can improve feedstock reliability and avoid the added logistical burden associated with overseas shipments.

Preserving both capabilities also gives California greater flexibility during disruptions. Allowing production to decline makes refineries more dependent on imported crude. Losing refineries creates a different problem: greater dependence on imported finished fuels. California should address both vulnerabilities rather than allow its transportation system to become increasingly reliant on distant suppliers at successive stages of the supply chain.

Availability Overseas Does Not Guarantee Delivery Here

The article also underscores why California’s supply planning must examine competition for transportation, alongside the availability of oil itself. Crude may be available for purchase while the ships needed to deliver it are scarce, costly or committed elsewhere. Longer voyages and disrupted trade routes can absorb vessel capacity and raise costs even for buyers whose shipments originate outside the immediate conflict area.

CIPA asked the CEC to evaluate precisely this issue: How reliable is California’s seaborne crude supply when other countries are competing for the same cargoes and vessels?

The Transportation Fuels Assessment should test scenarios involving simultaneous global demand pressures, vessel shortages, higher freight rates, and delayed deliveries. It should then compare those risks with the opportunities available through increased California production. Planning additional import capacity without fully evaluating the reliability and cost of the supply moving through it would leave a central question unanswered.

Make Local Supply a Policy Priority

California’s independent producers are prepared to contribute more to the state’s energy needs. Realizing that opportunity requires workable permitting, investment certainty, and policies that recognize the value of maintaining domestic production alongside refining capacity.

The next administration should treat responsible California crude production as an essential component of affordability and energy security. Rising tanker costs demonstrate why. Every additional imported barrel carries transportation obligations and market exposure that cannot be wished away by restricting production at home.

California cannot set the price of moving oil around the world. It can allow more of the oil its refineries need to be produced closer to where it will be used.