Beating the Rush

Californians can expect gas prices to jump to $8 per gallon in 2026. If you are wondering why, Brittany Bernstein explains in the WSJ why gas prices are out of control in the Golden State.  One likely cause is the planned closure of two oil refineries in the state. Slated to close in the coming year:

• Valero’s Benicia Refinery near San Francisco
• Phillips 66’s Wilmington Refinery near Los Angeles

Lane Riggs, Valero CEO, noted that California’s tough “regulatory enforcement environment” was the main factor driving the closure of the state’s sixth-largest refinery.

The April announcement came six months after regional and state air regulators fined the company $82 million for exceeding toxic emissions standards for more than 15 years.

Why did Phillips 66 announce the closure of its LA refinery, the seventh largest in the state? California passed ABX2-1, which requires refiners in the state to hold additional inventories of finished gasoline stock. About 72 hours later,  Phillips 66 attributed the closure not to any specific California policy but to “long-term uncertainty” around the future of the refining business in the state.

Chevron Beats the Rush

Last year, Chevron announced it would move its headquarters out of San Ramon, Calif., to Houston, Texas. Why? It was becoming increasingly difficult to do business in California.

According to Michael Mische, a professor in the practice of management and organization at USC and author of the paper predicting $8-per-gallon gas:

“So the refiners, I think, got to the point where they just said, ‘Enough is enough. We can’t operate under these conditions.”

At about 6-6.2 million gallons of gasoline per day, the two refineries represent almost 20% of in-state gas production.  California gas prices are already 40% higher than the US average, reports Ms. Bernstein. CA’s special blend of gasoline, sold only in California, places taxes and fees “on the shoulders of consumers,” according to Michael Mische.

California Governor Gavin Newsom blames California’s high gas prices on price gouging from fossil fuel companies.

According to Newsom in October:

They’re screwing you … They’ve been screwing you for years and years and years. There’s no other way to put it.

Who You Gonna Believe 

Disputing Newsom’s claims, Mische blames California’s “self-inflicted”  high prices. In Mische’s 50-year study of gas prices, he found no widespread evidence of price gouging, either by gas station owners, refiners, or oil producers in the state.

Apparently, policymakers are “trying to use regulations, taxes, and fees to drive up the costs of gasoline and force California consumers into EVs,” Mishce told NR.

EVs, however, aren’t keeping up. In the 2^nd Q of 2025, EVs accounted for just 22% of all new car sales, a decline from 25.3% in 2024.

Glavin Newsom’s goal is to eliminate new internal combustion engine vehicle sales by 2035. California and 10 other states want to block President Trump’s congressional resolution to block the rule. California is challenging the Trump administration’s congressional resolution in court.

Michael Mische adds,

“There’s no question, when you look at these policies, they were all driven to force the California consumer to make choices they didn’t want to make, all in the name of environmental justice and climate change.”

The Final Nails in the Coffin

A series of regulatory actions, including a requirement that refiners must maintain an inventory of gasoline stock and report to the Department of Petroleum Market Oversight, were the final blows, notes Mische. Mische thinks refiners are just throwing their hands up in the air and saying, “If we’re out of here in 2035, we might as well get out of here now; there’s no use putting hundreds of millions of dollars into this.”

Hard to fathom that California once ranked 4^th in the world in oil production. Today, the state accounts for just 2.5-to-2.7 % of all U.S. crude oil production and produces only 23.7% of its own in-state needs.

In 2024, California imported 60.7% of its oil from foreign sources, reports Ms. Bernstein. Foreign sources include Iraq, Brazil, Guyana, and Ecuador.

It is going to get worse with the pending closure of the aforesaid oil refineries. California will likely be left to further rely on foreign sources from countries like Saudi Arabia, India, China, South Korea, Singapore, and Japan.

Adding to the chaos, there are no inbound pipelines in California for oil or gasoline, meaning the import of gasoline will require the use of maritime tankers, which create their own greenhouse gas emissions.

Finally backpedaling, Governor Newsom is asking the California Energy Commission (CEC) to consider how to keep refineries from closing and how to prevent price shortages. The commission’s response: boost oil production and imports of refined gas. According to a spokesperson for the CEC, these measures “will help stabilize supply, increase investor confidence and protect workers while simultaneously taking additional actions to transition to a decarbonized transportation sector that protects consumers, communities and the environment.”

Too Little, Too Late

Governor Newsom seems to have awoken to the consequences of the state’s environmental policy. The repercussions for both the state and the local communities where the refineries are located were entirely predictable.

Valero’s Benicia Refinery is the city’s largest employer with more than 400 workers and accounts for nearly 20% of the city’s tax base.

The refinery’s closure would not only thrash the hundreds of employees who work there. Many restaurants, hotels, and businesses in the city’s industrial park provide services to the facility and its workers. There are also local nonprofits that receive donations from Valero.

Repercussions will not be confined to just California. Nevada is almost entirely dependent on California refineries for its gasoline. Nevada imports 88% of its gasoline from California. In Arizona, the state brings in 48% of its gasoline from Cali.