Categories: California Business NewsCalifornia State News

California Faces Fuel Supply Crisis as Refineries Shut Down

An empty gas station in California indicating a crisis in fuel supply as gas prices soar.

News Summary

California is projected to see a 75% increase in gas prices by 2026 due to the closing of two major refineries, Phillips 66 and Valero. The closures could result in significant job losses and an economic setback for the state. With current gas prices already high, the closures could exacerbate California’s budget deficit and dependency on imported oil, raising concerns about future fuel supply stability and overall economic health.

California is facing a potential crisis in its fuel supply as gas prices are projected to soar by 75% by the end of 2026, largely due to the anticipated closures of two significant refineries in the state. The Phillips 66 refinery in Los Angeles is expected to stop operations by the end of 2025, while the Valero refinery in Benicia is slated to cease production by April 2026. Together, these refineries account for approximately 20% of the gas produced locally in California, and their shutdowns could lead to gas prices soaring to about $8.43 per gallon.

Current estimates indicate that gas prices could climb to around $6.43 per gallon due to the Phillips 66 closure alone. The ramifications of these closures extend beyond increased prices; the combined impact on employment is significant. There are 1,300 jobs directly linked to these refineries, and considering the job multiplier of 2.3, total potential job losses may approach 3,000 statewide. This could compound the economic difficulties already faced by many Californians as the state grapples with a significant budget deficit.

The impending refinery closures are partially attributed to the strict regulatory environment in California, particularly the Low Carbon Fuel Standard. This regulation has imposed challenges for local refiners which find it difficult to remain profitable in light of high operational costs associated with compliance. Addressing these regulatory issues may help avert the closures, though the political will and capacity to act in this regard remain uncertain.

Impact on Fuel Supply and Economic Health

The closure of these refineries is expected to create a gasoline deficit in the state ranging from 6.6 million to 13.1 million gallons per day. Such a deficit would not only affect the supply but also have negative repercussions on California’s GDP, affordability, and the personal income of its residents. Currently, California produces only 23.7% of its own petroleum needs. This is a significant drop compared to historical levels; in 1982, the state was able to meet 62% of its petroleum needs through in-state production. In recent years, California has heavily relied on imported oil, which adds to its vulnerability in the face of potential refinery closures.

State Response and Future Concerns

The administration of Governor Gavin Newsom is under considerable pressure to respond to this impending fuel supply crisis. Regulatory measures aimed at improving fuel supply stability have been initiated, although the long-term effectiveness of these actions remains to be seen. The closures of the Phillips 66 and Valero refineries could significantly exacerbate California’s already considerable budget deficit of $73 billion and the overall state and local government debt, which stands at approximately $1.6 trillion.

As of April, California’s average gas price was reported at $4.918, in stark contrast to the national average of $3.260. This discrepancy illustrates the challenges faced by residents and businesses alike as gasoline prices continue to rise. Without immediate and effective intervention, Californians may soon bear the brunt of sustained elevated gas prices and an uncertain economic outlook driven by declining local production capacity.