by Julie Johnson
California could lose about 20% of its oil refining capacity in 12 months — with potentially significant implications for prices at the pump.
Two major refineries are poised to depart or make major changes: Phillips 66 has decided to shut down its Los Angeles refinery complex by the end of this year, and Valero Energy Corp announced this week that it may close its Bay Area refinery in Benicia.
The departures could hasten the state’s push away from fossil fuels but make another problem worse: California’s high gasoline prices.
On Friday, California’s average price per gallon of gasoline was $4.85, which was about $1.69 higher than the national average. Per gallon prices spiked above $6 twice in the last two years, spurring statewide panic and new legislation.
If both refineries close, the number of gasoline producers in the state would drop from nine to seven.
“It’s going to mean more expensive gasoline for motorists, it’s going to mean more expensive jet fuel for airlines, it’s going to be more expensive for farmers and truckers,” Patrick De Haan, head of petroleum analysis with GasBuddy, said.
Experts generally agree that California drivers will likely pay more per gallon if both refineries stop making gasoline, although exactly how much is hard to target.
De Haan said that without a major disruption, the bump in price could be fairly modest, adding an estimated 5 cents to 10 cents per gallon.
The bigger financial hit could arise amid supply disruptions — like shipping delays or issues that stop production at other refineries, such as unplanned maintenance or facility fires — when there are fewer producers overall to make up the difference. De Haan estimated per gallon prices could spike between 50 cents to $1.50 during temporary supply disruptions.
Northern California’s refineries for many years produced more gasoline than the region needed, which has kept gasoline prices generally lower than those in the southern half of the state, said Skip York, senior vice president and chief energy strategist at Turner Mason & Co., a Dallas-based energy consulting firm.
But in recent years, the region’s gasoline oversupply has switched to a deficit. “That’s going to be an issue for the state as a whole, but it’s going to be a bigger issue for Northern California,” York said.
Marathon’s Martinez facility stopped producing gasoline in 2020 and refurbished its facility to make green fuels, mostly renewable diesel. Phillips 66 also announced its plans to convert to renewable fuels in 2020 and stopped making gasoline last year once it finished retrofitting the facility.
That left three Bay Area refiners — Chevron in Richmond, PBF Energy’s Martinez Refining Co. in Martinez and Valero in Benicia — as the remaining gasoline makers in the northern half of the state.
But Martinez Refining Co. temporarily stopped producing gasoline in February after a major fire forced the facility to halt operations. The company recently began restarting some of its equipment, and will soon be producing gasoline and jet fuel, although not at full capacity until more extensive repairs are completed, a company spokesperson said.
Then this week Valero announced it might shutter its Benicia plant.
Valero said it alerted state regulators of “its current intent to idle, restructure, or cease refining operations at Valero’s Benicia Refinery by the end of April 2026.”
“The impacts on fuel supply, prices, and ultimately the cost of living for Californians are real and significant,” said California Assembly Member Lori Wilson, who represents Benicia, in a statement her office issued late Thursday.
Wilson called Valero’s announcement “deeply concerning not only for our local economy and the workers who depend on these jobs, but for the entire state.”
Severin Borenstein, an energy economist at UC Berkeley, said that Valero’s announcement could, at least in part, be a negotiating tactic to seek compromises with the state and create a more favorable business environment. California has passed a slate of laws to promote electric vehicles and phase out reliance on gasoline. Plus, Valero has been hit with multimillion-dollar pollution fines in recent years and faces a new level of scrutiny from a refinery oversight board Benicia city leaders voted to create this month.
Borenstein said that the California Energy Commission is slated to publish recommendations for how the state can ensure it has an adequate supply of gasoline while the state transitions away from fossil fuels without overburdening California consumers.
“We’ve known from the beginning that California’s greenhouse gas policies have some costs for consumers. The work we have to do now is to make sure it doesn’t become an exorbitant cost,” Borenstein said.
Californians’s high prices for gasoline already include the costs of some state policies aimed at slashing planet-warming emissions.
While demand for gasoline in the state has been declining for two decades — by about one percent each year — California’s gasoline supply is falling much faster.
In 2024, 13.4 billion gallons of gasoline were sold, down from 15.1 billion gallons in 2015 — an 11% decrease, according to the California Department of Tax and Fee Administration.
Colin Murphy, deputy director of UC Davis’ Policy Institute for Energy, Environment, and the Economy, cautioned that oil companies respond to a variety of factors when setting retail gasoline prices, and that global factors and profits may ultimately prove more influential.
“It’s important to remember that oil companies get to set prices however they want, and these don’t always reflect the cost of producing their product,” Murphy said. “It’s entirely possible they may choose to increase prices to maximize their profit.”
But the refinery closures could change a long-standing equation in California, where most of the gasoline is made in the state. Today, more than 90% of California gasoline is made here. The rest is imported. That percentage may have to grow.
There are geographic and technical limits on where California gets its gasoline. The state requires a special blend of fuels to meet state law, and not every refinery is able to make it. Moreover, there are no pipelines that could deliver finished gasoline from other major gasoline producing states like Texas.
California could be forced to import more fuel from overseas, such as gasoline producers in Asia able to make blends that comply with California laws. Importing more gasoline from the Pacific Northwest and Asia doesn’t necessarily mean higher prices, although it could.
For now, oil, gas and refined products are exempt from President Donald Trump’s tariffs, but if those exemptions are dropped, U.S. consumers could be forced to pay more for imported gasoline.
York said that shipping finished gasoline from overseas won’t necessarily cause gasoline prices to rise, although it could. It will, however, raise the risk of disruptions when the finished gasoline supply is coming on boats from overseas, where mechanical issues and weather are unpredictable.
“That’s a recipe for price volatility,” York said.