California’s oil refineries are closing at a fast pace, threatening to drive up gasoline prices in what is already one of the most expensive places to fuel up in the United States.
In the Los Angeles area, a complex is preparing to stop turning oil into gasoline by the end of the year. Another refinery outside San Francisco is poised to shut down next spring.
If both close, California will lose around 18 percent of its refining capacity, and prices at the pump are likely to rise. Forecasts for how much vary from around a dozen cents to several dollars per gallon. Regular gasoline averaged $4.65 a gallon in the state on Monday, substantially higher than the national average of $3.18, according to the AAA motor club.
The threat of higher fuel prices is upending energy politics in the state, which is leading the country’s transition to electric vehicles. A year ago, Gov. Gavin Newsom, a Democrat, was calling oil companies liars and “the polluted heart of this climate crisis.” Now, state officials are trying to convince refinery executives to keep at least one of the plants open.
California’s dilemma is an early example of the practical challenges involved in shifting from one energy source to another. The state’s demand for gasoline is falling steadily but, with the exception of the pandemic, slowly. When a refinery closes, though, a chunk of supply disappears at once.
Officials in California have made it clear that they want to wean the state from fossil fuels, and refiners want to take their business elsewhere. But state leaders appear to have been surprised by how quickly oil companies are decamping.
“This should be a great thing. The state and this industry are in agreement that it’s time for some of these facilities to close,” said Emily Grubert, an associate professor of sustainable energy policy at the University of Notre Dame. “Instead, we’re in this situation where it’s seen as a really significant problem.”
The simplest explanation for why refineries are closing is that demand is shrinking. California consumed around 16 percent less gasoline in 2024 than 20 years earlier, state data show. And while diesel use has changed little in that time, most of the state’s diesel is now made from fats such as canola oil, used cooking grease and other waste products rather than crude oil.
At first, oil companies responded by converting some California refineries to produce so-called renewable fuels. The remaining traditional facilities were losing customers, as more Californians bought electric and hybrid vehicles, but their returns remained relatively high, partly because, as some refineries shut down, they faced less competition.
Refineries in California recently earned around double the profit margin — or more — on a gallon of gasoline as those on the U.S. Gulf Coast, according to Tom Kloza, chief market analyst for Turner, Mason & Co., an energy consulting firm.
High fuel prices after the Covid-19 pandemic set off political backlash, however, and California lawmakers voted in 2023 to authorize state officials to cap fuel makers’ profit margins.
Some companies have responded by announcing plans to reduce their operations in California. Phillips 66 said almost a year ago that it planned to shut down its last remaining traditional refinery in the state. Valero said this spring that it planned to close its refinery in Benicia, north of San Francisco, by the end of April 2026. The companies have cited California’s long-term shift away from fossil fuels, as well as the high cost of maintenance and complying with state regulations.
“The continued outlook in California in the face of declining diesel and gasoline demand was a pretty tough one,” Mark Lashier, chief executive of Phillips 66, which is based in Houston, said last fall.
The threat of rising fuel prices is a political liability for Mr. Newsom, who has been working to raise his national profile ahead of the 2028 presidential election. He has struck a more conciliatory tone toward oil companies in recent months.
“We’re trying to find some balance,” Mr. Newsom said at a news conference in July, referring to the state’s long-term environmental goals and keeping energy costs low in the short term.
Last month, the California Energy Commission, a regulatory agency, voted to delay the effort to cap fuel makers’ profit margins until at least 2030. Officials have also been negotiating with Valero about its plans for the refinery near San Francisco. Valero did not respond to requests for comment.
“It’s not going to be a smooth market solution,” said Siva Gunda, vice chair of the California Energy Commission. The government will need “to work together to ensure those transitions are not lumpy.”
Beyond any potential effects on prices at the pump, refinery closures will have local economic consequences. Benicia is bracing for a roughly 13 percent hit to its general fund if the Valero refinery closes, said Mario Giuliani, Benicia’s city manager.
“We’re in this quandary of: We want to continue to reduce our dependence on fossil fuels, yet we’re not there yet,” Mr. Giuliani said. “California policy has essentially gotten too ahead of the market.”