California uncertain as refineries plan closures

Multiple refineries in California have recently declared their intentions to shutter operations, leaving the Golden State uncertain about future fuel supplies and impacts on prices at the pump.

Valero Energy Corp. was the latest to make such an announcement, alerting the California Energy Commission (CEC) last month that it would “idle, restructure or cease refining operations” at its Benicia refinery by the end of April 2026.

The Valero notice followed similar news at Phillips 66 in October, when that company said it would be ceasing operations at its Los Angeles-area refinery in the fourth quarter of 2025.

Firms are attributing these decisions to the restrictive regulatory environment in California, which is home to the nation’s biggest car market, despite an unparalleled clean energy push. 

“We know that California gasoline consumption is going to decline over time,” Severin Borenstein, an economist at the University of California, Berkeley, told The Hill.

“We are going to have exit, and we need to figure out — how are we going to handle that exit?” Borenstein continued.

Following Valero’s announcement that it would be reducing or closing operations at Benicia, in the northern San Francisco Bay Area, Gov. Gavin Newsom (D) reportedly sent a letter to the CEC, directing the regulators to guarantee reliable fuel supplies.

The letter instructed the CEC to “redouble the state’s efforts to work closely with refiners,” as well as offer changes to the state’s fuel management strategies by July 1, according to Reuters. 

The governor also asked the agency to substantiate the state’s belief that refineries can function profitably, while also blaming President Trump for the general market instability, Reuters reported.

Homer Bhullar, vice president of Valero, referred last week in an earnings call to a “plan to cease refining operations” at Benicia. Lane Riggs, the company’s CEO, on the same call described a regulatory ecosystem that “is the most stringent and difficult of anywhere else in North America.”

Similarly, the Phillips 66 announcement in October described the “long-term sustainability” of the Los Angeles location as “uncertain and affected by market dynamics.”

Assessing the overall prospects of fuel refinery departures, Borenstein emphasized the need “for some careful planning” on the part of regulators going forward.

Describing refineries as “very lumpy investments,” he explained that “when one exits, you could get a real imbalance, and in between, you could have excess supply of gas.”

In Borenstein’s mind, the CEC will need to consider how to enable more imports — answering questions such whether there is enough port space or enough pipeline capacity once the fuel arrives at the ports.  

The fuel refinery phaseout, he contended, will come with inherent challenges, particularly since California is the first state to initiate this long-term process — a process that has barely even begun.

“These are incredibly complex, expensive facilities, and they are constantly making long-term plans,” Borenstein said. “It’s very hard to predict how they’re going to respond to threats of regulation and threats of declining demand.”

Aiming to prevent future shortages and price spikes at the pump, Newsom in October signed into law controversial legislation aimed at tightening fuel refinery storage rules.

The ABx2-1 bill, approved in a special legislative session, gives the CEC the ability to set constraints on storage levels for each refiner, fuel and blending component, while also adjusting inventory minimums and establishing conditions under which refiners can draw down or rebuild reserves.

Although ABx2-1 ultimately earned the legislature’s favor to become state law, its advancement was neither unanimous nor without pushback — from oil companies, labor unions and lawmakers.

Chevron sent a letter to lawmakers warning that the imposition of new inventory constraints would only cause further price spikes, as first reported by local television station KRCA.

Meanwhile, labor unions took issue with CEC gaining “unprecedented regulatory authority to bureaucratically dictate safety maintenance at in-state refineries,” which they said could put workers at potential risk

Yet Borenstein pointed out that the legislation hasn’t yet led to any tangible action, as the bill was only giving the CEC the ability to consider establishing new regulations on these matters. The CEC, however, has yet to do so. 

“I would be at least cautious in concluding those things will ever happen,” he said.

Sanjay Varshney, a finance professor at California State University, Sacramento, had a different outlook on the fuel predicament, arguing that the Golden State is coping with “self-inflicted wounds.”

The higher prices at the pump, he contended, reflect California’s higher gas taxes, the state’s stricter fuel blend requirements and the lack of transportation pipelines.

Varshney said that because Newsom has both historically “used the oil industry as a punching bag” and told “them that they are basically rogues and scoundrels,” doing business right now makes for “interesting” circumstances.

“The companies are fed up, so they leave,” he added.

Although Varshney said he believes that California’s climate-oriented policies are well-intentioned, they may be “overly aggressive” when it comes to meeting consumer demands and keeping prices down.

“If you are leading, but nobody is following, can you basically change the world on your own?” Varshney asked.

He suggested, for example, that if everyone nationwide was using a higher blend of gasoline, then all states would be on an “equal footing” and Californians wouldn’t necessarily be paying higher prices than other Americans.

While Borenstein agreed that California’s gas prices aren’t going to budge anytime soon, he also expressed fewer qualms about the fact that they are high in the first place.

“I’m perfectly comfortable with the part that is due to higher taxes, which are going towards various government policies,” he said.

Borenstein acknowledged that California’s gas levies are more regressive — they take a greater toll on lower-income groups — in comparison to other taxes in the state, but he stressed that the fees fuel government action.

A bigger problem in his mind is the “mystery gasoline surcharge,” a term he coined that refers to the difference between fuel prices in California and those of other states, even after accounting for taxes.

That unexplained gap, which he said the CEC is now investigating, is likely “going towards profits of some company,” according to Borenstein.

“It is true that California has higher gasoline prices,” he said. “California also has way better air quality than, say, Salt Lake City, which has chosen not to clean up its gasoline supply.”

“When I was growing up in L.A., you could not see the mountains, and now you can,” Borenstein added. “That’s a choice Californians have made, to have a cleaner environment and to pay extra for it.”