Energy Musings - September 22, 2025
California Governor Gavin Newsom is proclaiming the state's new energy laws will lower fuel and electricity costs while sustaining its environmental leadership. It may be a reversal of policies.
California Dreaming
“Quick! Hand me a tourniquet before I bleed out. I shot myself in the foot. Dumb!” A speculative scene from the life of California Governor Gavin Newsom as he contemplates the harm he has done to his state’s residents by his years of anti-oil rhetoric.
As the saying goes, “the birds come home to roost,” and they are swarming like the scene from Alfred Hitchcock’s iconic 1963 movie, The Birds. Interestingly, our article’s title is the name of the song written by Michelle and John Phillips of the Mamas and the Papas in 1963, the same year as Hitchcock’s movie.
In an attempt to mitigate the harm that Newsom and his fellow California legislators have created, they developed a package of six energy-related laws aimed at easing the cost of energy for residents, while also enhancing environmental rules. Gasoline prices are $4.66 a gallon, the highest in the nation, and about $1.45 higher than the national average, according to AAA. Environmental laws and restrictions on the oil industry are the reason for high pump prices.
One new law streamlines the permitting process by modifying the California Environmental Quality Act review for approved permits, effectively limiting environmental review and expediting approvals. Projections indicate that Kern County, home to the state’s largest oil fields, could permit the drilling of up to 2,000 new wells annually for the next decade. In 2024, Kern County approved 84 new wells, and only a handful so far this year.
At one point, California was nearly self-sufficient in oil. However, over the past two decades, U.S. crude oil output has climbed to record highs, while California’s production dropped by more than 50%. The environmental push by California has decimated its oil industry to the point that it now supplies only 23% of the state’s refineries' needs. Because the state is not connected to pipelines that can bring crude oil from the rest of the nation, and there are no Jones Act-compliant ships available to haul more domestic supply from the Gulf Coast, California must import oil from Alaska and abroad. This adds to the environmental challenges the state faces, as ports struggle to accommodate the increasing number of ships, and they release more pollution due to the greater number of vessels arriving and as they wait to offload their cargoes. Smog has become an increasingly larger polluting source, returning parts of California to the days when Los Angeles was blanketed in smog daily. This prompted the state to mandate a cleaner gasoline formula, which has been adopted by numerous other states. They have fewer options today.
Furthermore, it has been estimated that at $65 a barrel, Californians will be sending $21 billion abroad to fuel suppliers, including Iraq, Saudi Arabia, Brazil, and Ecuador. That money could go to California producers to increase production and employ more workers.
While Newsom and the legislators aim to alleviate the problems faced by gasoline consumers, they continue their legal battle against the oil industry. It commenced in September 2023, when the state accused five oil companies – ExxonMobil, Chevron, Shell, ConocoPhillips, and BP - and the American Petroleum Institute of deceiving Californians for decades about the impact of climate change and of continuing to “greenwash” their role today. Based on a law signed a month after filing suit, in June 2024, California Attorney General Rob Bonta amended the suit to incorporate the new state law that allows the seizure of profits from companies shown to have violated false advertising and unfair competition laws. The plaintiff can seize “unjust profits” even without showing the plaintiff has suffered a loss, as required in the prior law.
Earlier, the Newsom administration conceived and secured passage of legislation mandating that refineries increase their storage volumes to mitigate price shocks when a refinery has an operational problem or extended maintenance. At the same time, refineries were being attacked for their profit margins, while now being forced to build additional storage, pay inventory taxes, and fund the carrying costs of increased inventories. That law was enacted days before Phillips 66 announced the closure of one of its refineries.
Another new bill directs the state to form a western regional electricity grid, enabling California to tap into greater supplies from other states. In 2024, California imported approximately 24% of its electricity. The belief is that this regional electricity system, which better coordinates the supply of electricity to all the western states, will save Californians money. Newsome suggests that rebates will amount to billions of dollars. Is this a false hope being held out to ratepayers struggling with the high cost of their electricity?
Pumpjack Memories
Bakersfield oil fields are famous for their pumpjacks.
The oil fields in Kern County are famous for their sea of pumpjacks that lift the oil from the reservoirs below. In 1981, we took a field trip to Bakersfield, the center of the Kern County oil industry, where we observed pumpjacks similar to those pictured above. At the time, we were friends with the energy writer for Fortune magazine. Shortly after our trip, we discussed the visual of the sea of pumpjacks. We noted that a little-known oilfield company dominated it – Lufkin Industries, located in the city in the woods of East Texas. This conversation led to the February 1981 article, A Pump Maker Primed for Profit.
We found a picture of the article and the cover of the Fortune issue in our copy of the 1982 corporate history, Lufkin – From Sawdust to Oil. The large-format book includes both a history and a substantial number of photographs from the company’s communications department, as well as contributions from long-time employees. Flipping through it was a pleasant journey down memory lane.
We found the history of Lufkin Industries fascinating, and it turned out to be a successful investment. At the time of the article, the company was nearly 80 years old, having been founded in 1902 after its founders relocated from Rusk, Texas, to Lufkin, Texas. The creation of Lufkin Foundry and Machine Company was designed to capture a larger share of the sawmill industry's business, which capitalized on the abundant East Texas woods. From making sawmill equipment, the founders expanded into supplying locomotives used to haul trees from farther away, as the East Texas woods were being depleted. It later added trailer units to its product lineup.
With the growth of the domestic oil industry in East Texas, the need for better equipment to lift oil from wells became evident. The derricks that dominated the 1920s oil fields had pumping arms attached that produced the oil. Lufkin began making pumps from iron that were more efficient and longer-lasting than pumps made from wood. The Lufkin pumpjack business was born. While its focus initially was on East Texas, it quickly spread throughout all of Texas, then nationally, and eventually internationally.
In the Forward to the corporate history, then-president Robert Poland wrote, “Throughout its history, Lufkin Industries always has built its equipment sturdier and heavier than it had to be, and it always has insisted on maintaining the highest quality possible.” He further noted, “In 1982, equipment is built in this same manner, and we plan to continue.” It was this robust equipment that drove the company’s success, as oil producers could count on the pumps working continuously, which in turn drove the lifeblood of their companies: cash flows and profits. We always enjoyed our visits to the company and meeting with management because it was a throwback to the old days.
California Wishing
The California energy situation remains a mess because of the single-purpose focus on the environment and the willingness to let the public pay higher prices for its energy. Several of the energy bills just passed attempt to address the high energy costs. However, the environmental policies also had to be expanded.
The hope from drilling more wells is that the state can produce an additional 50,000 barrels per day within a few years, which would boost the domestic contribution to the state’s refineries to 25% from the current 23%. While increasing the state’s oil output is designed to help local refineries, two are scheduled to close over the next nine months. That will remove 18% of the domestic refined petroleum supply.
Michael Mische, a Professor of the Practice at USC’s Marshall School of Business, projects that the loss of this supply could boost gasoline pump prices to $8 a gallon, which is a serious problem for the 28.5 million vehicles registered in California that use gasoline. Three Stanford University economists claim that it is false. However, the state is worried about the profitability of pipelines that ship oil from the Southern California oilfields to the refineries in the San Francisco area. Could they shut down, forcing the purchase of even more foreign crude oil?
However, with the shutdown of refining capacity, California must look to importing more foreign gasoline supplies. None of that supply will comply with California’s clean fuel standards, forcing the government to provide waivers. Dirtier gasoline and diesel fuels will add to the state’s pollution problems.
Among the legislation was a bill to extend California’s cap-and-trade program to 2045, aimed at reducing greenhouse gas emissions. The program is now being referred to as the “cap-and-invest” program, as the funds generated from it will create jobs and provide funding for other social issues. An estimated $800 million will go to affordable housing, $130 million for clean water, and $200 million for wildfire protection. The government will also allocate $1 billion in the 2026-2027 fiscal year from the Greenhouse Gas Reduction Fund to the controversial high-speed rail project.
Once again, California politicians are dreaming that they can make the public happy by handing out some money to select groups and talking about how their new laws will lower gasoline prices. We expect Californians to wait and see. But they might find the assessment of Assemblymember James Gallagher, A Yuba City Republican and minority leader emeritus, who mocked Newsom in a post on X. He wrote:
“Translation: I, Gavin C. Newsom, am slightly reversing course on my own policies because they suck and would have driven gas and electricity prices even higher. Nonetheless, I am not lowering any of those costs. Good luck to you, California. I’m busy running for President.”
We are unsure whether Newsom will highlight this legislative package when he campaigns nationwide for the Democratic presidential nomination in a couple of years. We further doubt that all California voters will be supporting him. Memories of the pain caused by high energy prices and other restrictions that impacted their lifestyles linger. California politicians and Newsom will continue to dream like the Mamas and Papas.