News Summary

California is anticipating a significant gas supply crisis as two major refineries, Valero and Phillips 66, announce closures. These shutdowns could lead to a 20% reduction in gas supply, potentially pushing prices above $8 per gallon. Local gas prices are already nearing $5 per gallon, with consumers facing steep bills. Experts warn that the refinery closures will further aggravate supply chain issues and drive costs up, putting additional pressure on California’s economy and consumers.

California lawmakers are raising serious concerns over the state’s looming gas crisis following announcements from two major oil refineries, the Valero Benicia Refinery and the Phillips 66 refinery, regarding their imminent closures. The Valero facility, located in the Bay Area, is scheduled to shut down in April 2026, while the Phillips 66 refinery in Southern California plans to cease operations in the next year. These closures are expected to result in a roughly 20% reduction in California’s gas supply, prompting fears of significant price hikes.

As of now, gas prices in various localities, including Walnut Creek, hover just under $5 per gallon, with numerous drivers already confronting bills exceeding $100 to fill their tanks. This stark reality has spurred some state officials, such as Democratic Assemblymember Connie Petrie-Norris, to question the rationale behind the refinery closures, especially in light of the high profit margins enjoyed by these facilities in recent times.

Experts, including UC Berkeley’s Severin Borenstein, have voiced concerns over an “abrupt increase” in gas prices should the refinery shutdowns proceed as planned. A study conducted by USC indicates that gas prices in California could soar by 75%, potentially surpassing $8 per gallon by next year. The dual closures of Valero and Phillips 66 will eliminate nearly 18% of the state’s crude oil refining capacity, further intensifying supply anxieties.

Cascading Effects on the Market

As gasoline consumption continues to decline in California, the speed of refinery capacity reductions may outpace this decrease. California already imports a significant 63.5% of its oil supply as of 2024, and the closures are projected to exacerbate the existing supply chain challenges. Industry analysts from consulting firms attribute rising fuel prices to the dynamics between supply and demand, aggravated by the recent refinery announcements.

Regulatory Environment

Valero’s CEO has pointed out that California possesses one of the most demanding regulatory environments for oil companies in North America. The complexity and costs related to compliance may contribute to the decisions to shutter operations. Recently, California Governor Gavin Newsom has set an ambitious target to phase out gas-powered vehicles by 2035 to reduce emissions, although political narratives at the federal level could complicate this initiative.

Government Responses

In response to the closure announcements and the looming crisis, Governor Newsom’s administration has taken steps to increase oversight of gas pricing and to combat potential price gouging practices. The governor has also urged refiners to collaborate more closely with the state to ensure that Californians have access to a stable gas supply.

Despite optimism that gas prices might slightly decrease during the summer driving season, experts remain pessimistic about the long-term trajectory of fuel costs. As state officials continue to explore all potential avenues to mitigate the anticipated rise in prices, the impact of the refinery closures on California’s economy and consumers remains a pressing concern.