With California’s government trying to force a transition to electric vehicles, its regulations are leading oil companies to shut down refinery operations, putting the state in a potential bind if it hopes to maintain its own stable supply of gasoline.

To avert such a crisis, the California Energy Commission is proposing that the state take control of at least one refinery as part of its mission to maintain a “reliable supply of affordable and safe transportation fuels in California.”

Conservatives and the oil industry argue the plan is the wrong approach. In a post on X, the account for Republicans in the state’s Assembly said, “Instead of bringing down costs for families, @CA_Dem politicians are considering taking control of California’s refineries. State-run refineries have led to massive corruption and mismanagement in Russia, Iran, and Venezuela. Why should we expect anything different in California?”

The End of Oil Refining in California?

Propelled by liberal policies such as a mandated phase-out of the sale of gas-powered vehicles by 2035, gasoline consumption in the Golden State fell by about 15 percent from 2005 to 2025, according to the Union of Concerned Scientists. Meanwhile, EVs and hybrids now account for roughly 25 percent of new car sales in the state. 

As a result of the regulatory landscape and decreased demand for gasoline, oil companies facing lower margins are opting to shut down their refining operations. Two refineries that produce biodiesel fuel for heavy-duty trucks halted operations in 2023, but the state could be on track to lose a lot more in the near term. A refinery outside of Los Angeles, the Phillips 66 refinery, announced it would shut down operations by the end of the year, leaving just eight major refineries operating in the state.

That number could further decrease as Chevron and Valero are also considering closing their refineries. In a conference call last year, the chief executive of Valero, Lane Riggs, suggested the company might shut down all its refineries in the state, saying, “Clearly, the California regulatory environment is putting pressure on operators out there and how they might think about going forward with their operations.”

Chevron, which was headquartered in California but is relocating to Texas, is also considering shutting down both of its refineries. The company’s president of downstream, midstream, and chemicals, Andy Walz, told Los Angeles Times, “Recent California policies, like banning the sale of new internal combustion engine vehicles by 2035, the potential tax/penalty on refinery profits and the potential new minimum storage requirement are all headwinds to our business and erode our confidence going forward.”

The chief energy strategist at energy consultant Turner Mason & Co., Skip York, told Los Angeles Times, that if more oil refineries close before California can develop a plan to maintain a supply of gasoline or before demand drops low enough, the state could be left with severe gasoline shortages.

A Quest for Price Controls?

California imports more than 56 percent of its crude oil from foreign sources, nearly 15 percent from Alaska, and roughly 29 percent is sourced from within the state. However, the problem facing California is that there is a lack of refineries in other parts of the country capable of producing the special fuel blends designed to prevent air pollution required by the state. 

The California Energy Commission says that more than 90 percent of the state’s gasoline supply comes from in-state oil refineries, and “significant unplanned refinery outages contribute to increases in the price at the pump.”

Lawmakers in California have attempted to mitigate the risks of disruptions to the supply of gasoline by enacting a law that requires refineries to maintain a minimum supply of fuel reserves to help in case of a disruption in supply. 

However, the law may be having the opposite of its intended effect and could actually be driving refineries to shut down operations. Oil and gas industry groups opposed the law, warning that the added costs of storing fuel would drive up costs for drivers by keeping gasoline off the market. 

 Just two days after Governor Newsom signed the bill into law, the Phillips 66 refinery announced it was shutting down in the state. While the decision was made shortly after the law was passed, the chief executive of Phillips 66, Mark Lashier, said that the decision was not a direct response to it. He questioned the “sustainability” of such operations due to “market dynamics.”

The Phillips 66 refinery accounted for roughly 8 percent of the refining capacity in the state, according to the U.S. Energy Information Administration. Still, the loss of the refinery will require “higher utilization of other California refineries and increased imports of products such as gasoline,” the energy agency said.

Regulatory Overload

Besides the fuel reserve law, companies with refinery operations in the state have had to grapple with the higher costs imposed on their industry by California’s regulations. The state has a cap-and-trade program that requires refineries and other greenhouse gas emitters to buy carbon credits to offset their emissions, further adding to the cost of operating in the state and cutting into profits. 

The California Energy Commission has not formally sent its proposals to mitigate the crisis to the legislature. One option the commission suggested takes a page from countries like Venezuela and Russia and would involve the state taking over control of at least one oil refinery. 

In a statement to the Sun, the CEC said there are “many challenges to overcome” with the plan for the state to run oil refineries, such as “high cost to purchase and operate, the skilled labor and expertise necessary to manage refinery operations, and how the refinery would fit into the state’s transition away from petroleum fuels.”

The commission also said it is taking a “comprehensive approach to see what measures may stabilize supply” and is working with the refining industry. It told the Sun it is also working with “environmental justice advocates” as it weighs various options to maintain the gasoline supply.

‘Not a DIY Project’

A spokesman for Mr. Newsom’s office tells the Sun, “California can both embrace our future of clean cars and protect drivers against gasoline price spikes. The state is engaged in meaningful and thoughtful policy work to successfully manage our transition away from fossil fuels over the next 20 years, not overnight.”

However, the Western States Petroleum Association, an advocacy group for the oil industry, is cautioning the state that running an oil refinery is not a “DIY project.”

The WSPA’s president, Catherine Reheis-Boyd, tells the Sun, “It takes deep expertise, strict safety protocols, and decades of industry know-how. There are no better people for the job than the men and women who currently power it.”

The California Energy Commission is slated to hold workshops to discuss its proposals, with the first one scheduled for February 25.