Several refineries in California have recently announced plans to shut down operations, raising concerns about the potential effects on fuel supply and prices in the state.
Valero Energy Corp. was the most recent to do so, notifying the California Energy Commission (CEC) last month that it might need to “idle, rebuild, or halt operations” at its Benicia refinery by the end of April 2026.
Phillips 66 also made headlines in October when it announced plans to cease operations at its Los Angeles-area refineries in late 2025.
These companies attribute their decisions to California’s stringent regulations, despite the state being home to the largest automotive market in the U.S. and a significant push towards clean energy.
“We know that gasoline consumption in California decreases over time,” noted Severine Borenstein, an economist at UC Berkeley. “We’ll have an exit, and we need to figure out how to handle that exit.”
Following Valero’s announcement regarding its Benicia facility, Governor Gavin Newsom reached out to the CEC, requesting measures to ensure a reliable fuel supply.
Newsom’s letter instructed the CEC to revise the state’s fuel management strategy by July 1 and emphasized the need for a close collaboration with refiners. He also expressed concerns about the market instability, attributing some of it to former President Trump’s actions.
During a recent earnings call, Valero’s Vice President, Homer Bhullar, indicated that the company plans to “stop refining business” at Benicia. The CEO, Lane Riggs, further described the regulatory landscape as “the toughest and most difficult anywhere else in North America.”
Phillips 66 echoed similar sentiments regarding the “long-term sustainability” of its refinery in Los Angeles, which they said is affected by market dynamics.
Borenstein stressed the importance of a “careful plan” moving forward, noting that refineries represent significant investments. “If you leave the market, you can create a real imbalance, leading to excess gas supply,” he explained.
He suggested that the CEC might need to facilitate more imports, raising questions about port capacity and pipeline infrastructure.
The challenges of closing refineries are particularly acute in California, the first state to embark on this long-term process, which is still in its early stages.
“These are complex and costly facilities,” Borenstein said. “Predicting how we’ll respond to regulatory pressures and reduced demand is extremely difficult.”
In response to concerns over fuel shortages and price spikes, a recent law aimed at tightening fuel refinery storage rules was passed in a special legislative session. This law, ABX2-1, grants the CEC the power to set limits on storage levels and adjust conditions for refiners regarding their reserves.
While it received legislative backing, its journey faced opposition from oil companies and labor unions alike. Chevron warned that new inventory constraints might lead to further price hikes, as reported by a local television station.
Labor unions expressed concern about the CEC’s expanded regulatory authority potentially endangering worker safety at refineries.
Borenstein noted that the law hasn’t yet resulted in specific lawsuits, as it merely empowers the CEC to consider new regulations, which they have not acted upon yet. “Let’s not rush to conclusions about what will or won’t happen,” he cautioned.
On a different note, finance professor Sanjay Varshney at California State University viewed the fuel predicament as a form of “self-injury.” He claimed that elevated pump prices stem from California’s higher gas taxes, strict blending requirements, and insufficient transportation pipelines.
He argued that Newsom has historically criticized the oil industry, creating an interesting dynamic, suggesting that the companies are fed up and choosing to exit.
Varshney asserted that while California’s climate policies are intentional, they can sometimes be “overly aggressive” in dealing with price demands.
“Can you change the world by yourself?” he pondered, referring to the state’s environmental efforts without broader nationwide participation.
Borenstein, meanwhile, admitted that gas prices wouldn’t drop anytime soon but didn’t feel alarmed about their increase. He pointed out the higher taxes and government policies contributing to the situation.
He acknowledged that such taxes disproportionately affect lower-income groups but emphasized that they are results of government actions.
Borenstein raised a critical point about what he calls the “Mystery Gasoline Extra Charge,” which refers to the unexplained difference in prices between California and other states, even after taxes are factored in. He suggested that this gap might be related to the profits of some companies under investigation by the CEC.
“It’s true that gasoline prices in California are high,” he said, drawing a comparison with areas like Salt Lake City that haven’t adopted similar clean air standards. “When I was growing up in Los Angeles, you couldn’t see the mountains, and now you can,” Borenstein reflected. “It’s a choice Californians have made for a cleaner environment, accepting the costs that come with it.”
