California is well known for its high fuel prices and strict environmental regulations, but a string of upcoming oil refinery shutdowns—exacerbated by a massive fire at a huge Chevron plant—threatens to spike the state’s sky-high prices further and force the state to import much more oil from Asia.
The upcoming closures by refining giants Phillips 66 and Valero Energy have triggered an about-face from Democratic Gov. Gavin Newsom and state regulators to try to keep the fuel complexes open after years of rules that cut into their bottom lines. It’s too late to save Phillips 66’s Los Angeles refinery, but there’s at least an inkling of hope to cut a deal to salvage Valero’s Benicia refinery just north of San Francisco. Losing both cuts off nearly 20% of the state’s refining capacity and makes California susceptible to potential shortages if there are disruptions to foreign, waterborne supplies.
“The state has continued to overestimate its ability to wean itself off liquid fuels, and I think they’re starting to realize it may be too little, too late,” Patrick De Haan, head of petroleum analysis at GasBuddy, told Fortune. “Prices will rise, and the pricing volatilities are going to be more extreme.”
The politically blue state of nearly 40 million people faces the imminent closure of Phillips 66’s Los Angeles refinery, which is processing its final shipments of crude oil in October before closing by the end of this year. Up next, the Benicia complex is slated to shutter by the end of April.
While California is a leader in renewable power and electric vehicle adoption, it still relies on lots of gasoline, diesel, and jet fuel. California consumes almost 900,000 barrels of gasoline a day, down from a 2017 peak of nearly 1 million barrels daily. Refiners don’t want to invest in California because of expensive regulatory burdens in a declining market, but the refineries are closing more rapidly than demand is falling, putting the pinch on the state and its motorists.
“California thinks it’s going to be able to put the end date on gasoline and fossil fuels, but that’s just impossible,” De Haan said. “Essentially what they did was signal to the industry that they’re not open for business when it comes to refining.”
And it didn’t help when Chevron’s huge El Segundo refinery outside of Los Angeles suffered an explosion on Oct. 2. The fire was put out a day later, primarily harming a large, jet fuel–producing unit. Chevron, which is rooted in Standard Oil of California, moved its long-tenured headquarters from California to Houston last year.
“We have been able to meet our customer commitments throughout the incident and anticipate continuing to do so as we move toward a fuller recovery,” said Chevron spokesman Ross Allen in a statement. “The refinery continues to operate and create transportation fuels, although at diminished rates.”
Jim Mitchell, Wood Mackenzie director of oil trading analytics, said the coincidental timing of the closure and fire could not have been worse even if they were planned.
“There is going to be a price spike. Is it going be $8 a gallon? I don’t see it getting that bad,” Mitchell said.
Jet fuel prices already have jumped about 13%—an increase of 30 cents per gallon—since the fire, according to the California Energy Commission.
Larger gasoline price hikes are expected next year, especially when and if Benicia closes, analysts said.
California gasoline already is the most expensive in the nation at $4.66 per gallon for regular unleaded, which is about $1.50 more than the national average and more than $2 over the refining hub of Houston’s average of $2.62 per gallon, according to GasBuddy.
And this is with nationwide fuel prices being at their lowest since the demand bust during the pandemic in 2020.
What’s being done?
Just over a month ago, California opted to delay by five years planned price caps for refiners that were adopted when pump prices jumped to nearly $6.50 a gallon in 2022, when global crude costs surged after Russia’s invasion of Ukraine.
The state also is weighing changes to a new law mandating refineries spend extra to store minimum levels of petroleum products on site. That law was considered the final straw for Phillips 66’s refinery that churns through 139,000 barrels of crude daily.
But any potential changes must go through periods of stakeholder feedback and rulemaking considerations, the state energy commission said, so nothing will happen in the near term.
Negotiations are ongoing with Valero for its 170,000-barrel-per-day Benicia complex, which supplies about 10% of the state’s refining capacity. Newsom and the energy commission won’t comment on specifics. But reports indicate the state could help cover maintenance costs or facilitate a sale.
Valero did not respond to requests for comment for this story, but on a second-quarter earnings call in late July, Valero executive vice president Rich Walsh acknowledged the state’s efforts to keep Benicia open, and Valero hasn’t shut the door just yet.
“There’s a genuine desire for them to avoid the refinery closure, but there’s no solutions that have materialized, at least not from our perspective,” Walsh said on the earnings call.
As for Phillips 66, the Houston refiner will soon conclude its oil-refining operations in the state. Last year, Phillips 66 transitioned its Rodeo refinery near San Francisco into a renewable diesel production complex that processes hydrotreated vegetable oil. In 40 years, the number of California refineries has plunged from 40 to 14 amid closures, consolidation, and expansions of the surviving facilities.
Looking at the numbers, California’s gasoline demand of 874,000 barrels a day is already overwhelming the state’s refining capacity that falls to 740,000 barrels daily after the Phillips 66 closure. Next year, capacity would dip to 668,000 barrels daily, well below consumption, according to Wood Mackenzie estimates.
As for jet fuel, the state’s demand of 176,000 barrels a day will outpace its capacity of 146,000 barrels daily at the end of this year—not counting the El Segundo disruption. Next year, capacity would plunge to 131,000 barrels daily.
California essentially operates as an island between the Pacific Ocean and mountainous terrain that makes it incredibly difficult and expensive to build oil and fuel pipelines, Mitchell said. The bottom line is California will have to import a lot more gasoline and jet fuel from Asia, even though the U.S. is by far the world’s leader in oil production. Arizona also will suffer from the Los Angeles closure, he said.
The state will lean on South Korea, Singapore, Japan, India, and the Middle East for its fuel, Mitchell added, and that will cost more and make California more vulnerable to disruptions, especially since the overseas treks take nearly two weeks to move the products.
California’s total petroleum product imports have risen to a high of almost 300,000 barrels per day in recent months and threaten to move higher in 2026.
“The Asian suppliers are very interested in the California market,” Mitchell said. “That’s because they see a necessary willingness from California to pay more.
“For California to get the supply that they need, they’re going to have to up their price. They’re going to have to up their bid,” Mitchell noted. “That’s a hefty voyage, so you have to preplan. And it leaves California more susceptible to disruptions.”
