A University of California professor has once again expressed concerns about California’s gasoline price problem, highlighting how the state has created an environment that breeds exceptionally high fuel prices thanks to limited production capacity, strict environmental regulations, and a race to wean off gasoline.
As UC Berkeley’s Severin Borenstein explained:
“These two latest refinery closures would reduce the total production in California faster than in-state consumption will plausibly decline. If that happened, and nothing else changed, the result would be a severe gasoline shortage and likely an unprecedented price increase.”
Phillips 66’s Wilmington and Valero’s Benicia are set to shut operations in the state within the next year, putting the state on a path to lose 17 percent of its refining capacity at an alarming rate.
With more losses in refining, Californians—who already face the highest gas prices in the nation—will likely only see their fuel prices rise even further.
Refineries Run to the Exit. Are Imports the Answer?
Phillips 66 first announced its plans to close its Wilmington facility last October, with Valero submitting a similar notice for its Benicia refinery in April.
Although refinery closures are cause for a concern in any state, they are particularly troublesome for California. Due to the state’s geographical placement and lack of connectivity to other U.S. refinery hubs, the two refineries represent a large percentage of the state’s refinery capacity. As the Energy Information Administration explains:
“Although the Los Angeles and Benicia refineries make up less than 2 percent of current U.S. refining capacity, they account for 17 percent of California refinery capacity and 11 percent of West Coast (PADD 5) capacity. The supply shortfall left by their exit is therefore likely to have an outsized impact on the region because it cannot be easily filled by other refineries elsewhere in the country.” [emphasis added]
So, where does this leave California? According to both Borenstein and the EIA, imports are the likely “solution” to California’s supply issue underpinned by the refinery closures. As EIA explains:
“The supply shortfall left by their exit is therefore likely to have an outsized impact on the region because it cannot be easily filled by other refineries elsewhere in the country. Given the limited connectivity to other U.S refining hubs, the most likely source of replacement fuels will be imports from Asia, particularly imports of jet fuel and gasoline.”
It’s no surprise that California is likely going to find its replacement fuels with imports from foreign markets – in 2024, the state imported more than 321.8 million barrels of crude oil, the majority of which came from Iraq. In fact, only 36.6 percent of California’s refinery fuel supply was sourced within the state or Alaska in 2024, with fuel imports into California hitting 4-year highs last May—and that’s before losing almost 20 percent more of its refining capacity. The increase in imports comes amid
Increasing imports of foreign-produced fuels may seem to be the easiest—and therefore most likely—solution to the supply shortage facing California, but it also increases California’s reliance on foreign suppliers amid growing global oil demand. Europe’s reliance on foreign energy sources has led to significant energy security vulnerabilities for the continent, which is a lesson California should consider as it attempts to solve its crisis.
What’s more, many of the nations producing California’s imported fuel must adhere to significantly less stringent environmental standards than American energy producers. This difference, coupled with the transportation of the fuel, means California may actually be increasing emissions.
Politicians Make Consumers Pay the Price for Poor Policies
When looking at exactly how California ended up in its dire energy crisis, it is important to remember that this crisis is entirely self-inflicted, thanks to the state’s decades long war on energy producers.
California Governor Gavin Newsom has led a crusade against oil and gas companies, most recently signing ABX2-1 in 2024, a law which specifically targets refineries in the state. Newsom has also directed agencies’ to limit oil extraction and investment in the state, including ending the issuance of new permits for hydraulic fracturing.
Strict environmental regulations also make refining more expensive and challenging in California. Examples of such punitive policies include a special gasoline blend, lofty emissions targets, and elimination of MTBE, a key additive in gasoline.
As Energy in Depth has recently analyzed, California is not the only state whose residents are facing exceptionally high costs thanks to state energy policies that have over-prioritized sustainability while ignoring economic feasibility. For example, in New York, utilities are sounding the alarm over a similar situation with electricity costs.
Notably, Newsom is also coming to grips with these realities and backing off some of his most extreme attacks on fossil fuels.
Newsom’s recent actions regarding the refinery closures exemplify this drastic shift. As CalMatters reports:
“In April, after Valero said it would close its Benicia refinery, Newsom directed Siva Gunda, vice chair of the California Energy Commission, to “redouble the state’s efforts to work closely with refiners on short- and long-term planning” and ensure a “reliable supply of transportation fuels.”
State Senator Henry Stern – a Calabasas Democrat and longtime opponent of fossil fuels – told CalMatters the current refinery crisis is a sign his party needs to “evolve” on climate:
“We all need to kind of evolve. Maybe that’s just the lesson on climate. There’s not really a purity test on this. It’s not like civil rights,” said state Sen. Henry Stern, a Calabasas Democrat who five years ago was publicly advocating for keeping more California oil in the ground.”
Only time will tell if Newsom’s reversal will be enough to help solve California’s self-inflicted energy crisis. If the state is serious about creating a fairer environment for oil and gas companies, it must restart permitting, reform punitive regulations, and increase energy supplies to bring down gas prices.
Bottom Line: California’s current energy crisis has been building for years amid one-sided, environmental policies pursued by Gov. Newsom’s administration. The state’s continuous refinery closures set a clear example: create a business environment where it is impossible to operate, and you may lose a crucial partner.
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