Gas is expected to hit $8 per gallon due in part to the closure of two major oil refineries that were regulated out of existence.
California gas prices could jump to $8 per gallon in 2026 thanks to the planned closure of two oil refineries in the state, according to an estimate by the University of Southern California.
Valero’s Benicia Refinery near San Francisco and Phillips 66’s Wilmington Refinery near Los Angeles are both slated to close in the coming year.
In explaining the company’s decision to close its Benicia refinery, Valero CEO Lane Riggs said on an earnings call that California’s tough “regulatory enforcement environment” was the main factor driving the closure of the state’s sixth-largest refinery.
The April announcement came six months after regional and state air regulators fined the company $82 million for exceeding toxic emissions standards for more than 15 years.
Meanwhile, Phillips 66 announced the closure of its Los Angeles refinery, the seventh largest in the state, just 72 hours after California passed ABX2-1, which requires refiners in the state to hold additional inventories of finished gasoline stock. The company attributed the closure not to any specific California policy but due to “long-term uncertainty” around the future of the refining business in the state.
And Chevron announced last year it would move its headquarters out of San Ramon, Calif., to Houston, Texas, because it was becoming increasingly difficult to do business in the Golden State.
“We have legislated ourselves into a situation where the costs are extraordinarily high and the political environment is extraordinarily harsh,” said Michael Mische, a professor in the practice of management and organization at USC who authored the paper predicting $8-per-gallon gas.
“So the refiners, I think, got to the point where they just said, ‘Enough is enough. We can’t operate under these conditions.”
Experts are predicting dire consequences; the two refineries represent almost 20 percent of in-state gasoline production, or around 6 to 6.2 million gallons of gasoline per day.
Already, California gas prices regularly sit 40 percent higher than the U.S. average, a difference attributable to “supply issues, the CA special blend of gasoline (which is only sold in California) and a layering of taxes and fees on the shoulders of consumers,” according to Mische.
California Governor Gavin Newsom, for his part, has blamed fossil fuel companies for the state’s high gas prices, saying the firms have been price gouging for a long time. “They’re screwing you,” Newsom said in October. “They’ve been screwing you for years and years and years. There’s no other way to put it.”
But Mische disputes Newsom’s claims, finding in his recent research that the state’s high gas prices are “self-inflicted.” His study of 50 years of gas prices found no widespread evidence of price gouging, either by gas station owners or refiners or oil producers in the state.
“It is [apparent] that policymakers are trying to use regulations, taxes, and fees to drive up the costs of gasoline and force California consumers into EVs,” he told NR.
But EV adoption rates haven’t kept pace with mandates handed down by the California Air Resource Board, which has said 35 percent of sales of 2026 model-year vehicles must be zero-emission. Instead, in the second quarter of this year, EVs accounted for just 22 percent of all new car sales, a decline from 25.3 percent in 2024.
That reality is butting up against Newsom’s objective to eliminate new internal combustion engine vehicle sales by 2035 — though President Trump recently signed a congressional resolution to block the rule. California and ten other states have challenged the congressional resolution in court.
“There’s no question, when you look at these policies, they were all driven to force the California consumer to make choices they didn’t want to make, all in the name of environmental justice and climate change,” Mische said.
The 2035 mandate banning the sale of gas-powered cars “created the coffin” for refiners, and then a series of regulatory actions afterwards, including a requirement that refiners must maintain an inventory of gasoline stock and report to a Department of Petroleum Market Oversight, were the final nails in the coffin, Mische said.
“I think the refiners have just been throwing their hands up in the air and saying if we’re out of here in 2035, we might as well get out of here now, there’s no use putting hundreds of millions of dollars into this.”
California has seen a 69.7 percent decline in the number of refineries and a 26 percent decrease in refinery capacity over the last 40 years, all while the state has seen a 25 percent increase in population.
While it once ranked fourth in the world in oil production, today, California accounts for just 2.5 to 2.7 percent of all U.S. crude oil production and produces only 23.7 percent of its own in-state needs.
This has left California “highly dependent” on oil imports from foreign sources, including Iraq, Brazil, Guyana, and Ecuador. In 2024, California imported 60.7 percent of its oil from foreign sources.
With the pending closure of the two oil refineries, that situation stands to worsen. California will likely be left to further rely on foreign sources, and may have to branch out to import gasoline from countries like Saudi Arabia, India, China, South Korea, Singapore, and Japan.
And because California has no inbound pipelines for oil or gasoline, the import of gasoline will require the use of maritime tankers, which create their own greenhouse gas emissions.
Now, Newsom is backpedaling. The governor asked the California Energy Commission to consider how to keep refineries from closing and how to prevent price shortages. The commission responded in June, advising Newsom to boost oil production and imports of refined gas.
The measures “will help stabilize supply, increase investor confidence and protect workers while simultaneously taking additional actions to transition to a decarbonized transportation sector that protects consumers, communities and the environment,” Sandy Louey, a spokesperson for the California Energy Commission, told Marin Independent Journal.
The state is also reportedly taking the unusual step of trying to step in to find a buyer for Valero’s Benicia Refinery, but experts say reaching, and closing, a deal before the slated April 2026 closure is a tall order. The California Energy Commission confirmed to Reuters that it “is engaging with market players to explore pathways for the continued operation of in-state refineries.”
The outlet reports a thorough sale process would normally take place over the course of several months, and that the closure of any deal typically takes three to six months.
But while Newsom has finally awoken to the consequences of the state’s environmental policy, the repercussions for both the state and the local communities where the refineries are located were entirely predictable.
Valero’s Benicia Refinery is the city’s largest employer with more than 400 workers and accounts for nearly 20 percent of the city’s tax base.
“We’re in a situation where we’re going to have $10 (million) to $12 million less than last year,” Mayor Steve Young told KQED. “The hit on the community is going to be severe. My main job is to ease that transition as much as we can.”
He said the refinery’s closure would negatively impact not only the hundreds of employees who work there but also restaurants, hotels and businesses in the city’s industrial park that provide services to the facility and its workers, along with local nonprofits that receive donations from Valero.
The mayor argues the closure could even pose a national security threat, as it’s the sole provider of jet fuel to Travis Air Force Base. That fuel is delivered via a direct pipeline.
Meanwhile, Phillips 66 is set to shutter and begin winding down operations at its LA-area refinery in October. By December, it will lay off most of its 600 employees and 300 contractors.
California already saw the devastating effects of a local refinery’s closure in 2020, when Marathon’s facility in Martinez closed and hundreds of workers lost their jobs. While the facility was initially converted into an oil storage facility, it was later repurposed to produce renewable diesel.
One year after the closure, 26 percent of workers were still unemployed and workers who landed new jobs took an average 24 percent pay cut.
California “does not have a strategy for helping refinery workers and communities when a facility closes,” writes Jessie HF Hammerling, the co-director of the UC Berkeley Labor Center’s Green Economy Program, and Virginia Parks, a professor of urban planning and public policy at UC Irvine.
And the repercussions could extend even beyond California; price increases in the Golden State will most likely be reflected in retail prices in Nevada, which is almost entirely dependent on California refineries for its gasoline, and even Arizona. Nevada imports 88 percent of its gasoline from California, while Arizona brings in 48 percent of its gasoline from the Golden State.