Phillips 66’s two refineries in Los Angeles are set to close by the end of this year, with analysts predicting a significant increase in gasoline prices in California as a result. These two refineries account for about 8% of the state’s refining capacity.
Following this, Valero Energy Corporation announced on Wednesday (16th) that it will either close or restructure its Benicia refinery in the San Francisco Bay Area by April next year, which represents around 9% of California’s refining capacity. This announcement has further exacerbated concerns in the market regarding gasoline prices and supply.
Prior to the announcements of these refinery closures, the California Energy Commission released a report last August on transportation fuels, which included “state takeover of refineries” as one of the 12 strategies to control oil prices and ensure supply. The report suggested that the state government could take over individual refineries or all refineries in the state.
However, industry experts strongly oppose this idea, arguing that it is risky, operationally challenging, and unlikely to effectively control oil prices.
If Valero’s Benicia refinery closes, California will be left with only seven refineries. Together, Phillips 66 and Valero account for nearly a fifth of the gasoline supply in California, highlighting the significant impact of their closures.
Based in Houston, Texas, the oil giant Phillips 66 announced in October last year the closure of its over century-old refineries in Carson and Wilmington in Southern California. Just two days ago, California Governor Gavin Newsom signed a new law authorizing the state government to require refineries to stockpile additional gasoline to prevent shortages and price spikes.
However, Phillips 66 has stated that the decision to close the refineries is unrelated to the new law.
According to a research report published by Michael Mische, a professor at the USC Marshall School of Business, California’s gasoline prices are typically about 13% higher than in other parts of the country. Currently, gasoline prices in California are $1.68 per gallon higher than the national average.
Newsom and other Democratic leaders have long attributed high gasoline prices to “Big Oil” price manipulation. In March 2023, Newsom signed a bill imposing fines on oil companies that exceed the profit limit set by the state government.
Newsom stated at a press conference that oil companies have been profiteering from California families for decades and hiding their accounts from the public, and that they are ending the industry’s excessive influence on California and holding them accountable.
However, research from USC indicates that the high oil prices in California are not caused by oil companies but rather the state’s own policies. The study explicitly states that California refineries do not engage in large-scale price manipulation, price gouging, hidden markups, or other unreasonable pricing behaviors.
Researchers predict that prices are likely to rise after the closure of Phillips 66’s refinery, and “demand is unlikely to decrease.” To make up for the loss of Phillips 66’s capacity, California may need to import more gasoline that meets state standards, which is not only costly but also requires existing refineries to increase their operating rates.
The study concludes that California’s high oil prices are the result of a combination of radical environmental policies, compliance and reporting costs, high operating costs, increasing taxes, declining domestic oil production, increased reliance on foreign oil, and other factors.
In proposing the takeover of refineries, the state of California claims that the government would operate a production source independent of the market to eliminate potential market manipulation.
Catherine Reheis-Boyd, CEO of the Western States Petroleum Association (WSPA), told Epoch Times that the idea that California could operate refineries better than professional oil companies is “completely unrealistic” and should not even be considered as an option.
She pointed out that California’s number of refineries has decreased from 40 in 1980 to the current 9 (excluding the soon-to-be-closed Phillips 66 refineries). She stated, “There are currently no refineries for sale in California, and no one is looking to build new refineries. They are not selling refineries; they are closing them.”
She also mentioned that California is an “energy island” with no crude oil pipelines crossing the Sierra Nevada Mountains to connect with other states.
Despite California’s strong push for electric vehicles, gasoline retail sales in the state have remained around 12.7 billion gallons annually from 2010 to 2023, indicating a lack of significant demand reduction.
Another alternative for California is to import a large amount of finished gasoline and diesel rather than refining crude oil within the state. Reheis-Boyd warned that this could lead to the loss of over 150,000 refinery-related jobs.
Skip York, Chief Energy Strategist at Turner Mason Co., pointed out that the discussion of California taking over refineries is aimed at ensuring stable gasoline supply. However, he believes that neither the state government nor consumers can afford to lose another refinery — as it would lead to shortages and price spikes. “Demand won’t decrease,” he said, “so you have to find a way to supplement supply from elsewhere.”
York also suggested that after the state government takes over refineries, they may intentionally reduce gasoline supply and increase prices to push more people towards electric vehicles. He said, “There is no regulation saying the state government can’t do that.”
In response, Lindsay Buckley, a spokesperson for the California Air Resources Board (CARB), emphasized in an email to Epoch Times that the state government has no intention of incentivizing the switch to electric vehicles by raising gas prices.
“This is absolutely incorrect,” she stated, adding that California will ensure the affordability and stability of transportation fuel during the transition to zero-emission vehicles.
Buckley also mentioned that in the past two years, a quarter of Californians chose to purchase zero-emission vehicles (ZEVs) over traditional fuel vehicles.
From 2021 to 2023, electric vehicle sales in California maintained an annual growth rate of over 40%; by 2024, although the growth rate slowed, it still remained at a steady level. Conversely, traditional fuel vehicle sales declined by 1%.
California plans to ban the sale of new gasoline-powered cars starting in 2035.
In 2022, Governor Newsom signed several climate bills aiming to achieve carbon neutrality by 2045 and 90% clean energy supply by 2035.
Mike Umbro, energy consultant and founder of Premier Resource Management, stated that the taxes and fees collected by California and the federal government on every gallon of gasoline are actually higher than the profits obtained by oil companies.
According to WSPA statistics, as of March this year, gasoline prices include an estimated $1.26 in taxes per gallon: $1.08 from California and 18 cents from the federal government.
California’s Department of Tax and Fee Administration data shows that the state sold 13.4 billion gallons of gasoline last year, resulting in an estimated $14.5 billion in revenue for the state government, while the federal government received only about $2.4 billion.
Umbro criticized Newsom and some Democratic lawmakers for criticizing “Big Oil” for inflating oil prices while reaping the greatest benefit from those prices.
He believes that reopening local oil fields in California and reducing import reliance could save $30 billion annually and preserve high-paying energy jobs in the United States.
Daniel Villasenor, a spokesperson for the California Governor’s Office, wrote to Epoch Times on the 14th, stating that since Newsom signed the California’s Gas Price Gouging Law two years ago, California has successfully avoided significant oil price spikes, saving consumers “billions of dollars.”
He emphasized that the law established a state-level independent oil oversight agency specifically responsible for monitoring and holding “Big Oil” accountable.
Villasenor stated, “Despite what the oil industry and its allies may say, Governor Newsom’s efforts to address oil price spikes far exceed those of any recent governor.”