California, long celebrated for leading the United States in electric cars and reduced gasoline use, is now confronting a new and less welcome milestone. Major oil companies are preparing to shut down refineries across the state, creating the risk of much higher gasoline prices in a region already known for the nation’s steepest fuel costs.

Story Highlights

• Two major California oil refineries (Los Angeles and Benicia) scheduled for closure within 18 months

• Loss of about 18% of refining capacity could drive gasoline prices sharply higher

• Regular gasoline averages $4.65 a gallon versus $3.18 nationally (AAA)

• Governor Gavin Newsom moderates stance toward oil companies as fuel costs rise

• Local economic impacts include a projected 13% revenue loss for Benicia

California Oil Refineries Face Rapid Closures

In the Los Angeles area, a Phillips 66 complex is preparing to stop turning crude oil into gasoline by the end of the year. North of San Francisco, Valero has announced plans to close its Benicia refinery next spring. Together, these shutdowns would remove roughly 18 percent of California’s refining capacity.

Forecasts for how much pump prices could rise vary widely — from just a few cents to several dollars per gallon. Regular gasoline in California averaged $4.65 a gallon on Monday, according to AAA, far above the national average of $3.18.

Demand Declines, But Supply Drops Faster

California consumed about 16 percent less gasoline in 2024 than it did 20 years ago. Diesel use has changed little, but a majority of the state’s diesel is now produced from renewable sources such as canola oil, used cooking grease, and other waste products rather than from crude oil.

At first, oil companies responded by converting some California oil refineries to produce renewable fuels. Yet even as demand fell, traditional refineries still posted healthy returns, partly because each closure reduced competition.

High Profits Draw Political Attention

“California refineries recently earned around double the profit margin on a gallon of gasoline compared with Gulf Coast plants,” said Tom Kloza, chief market analyst at Turner, Mason & Co., an energy consulting firm.

High fuel prices after the Covid-19 pandemic sparked a political backlash. In 2023, California lawmakers authorized officials to cap fuel makers’ profit margins. Since then, several companies have announced plans to reduce operations or exit the state entirely.

Phillips 66 revealed almost a year ago that it would close its last remaining traditional refinery in California. Valero followed this spring, saying it would shutter its Benicia refinery by April 2026. The companies cited California’s long-term move away from fossil fuels, along with the high costs of maintenance and compliance with state regulations.

“The continued outlook in California in the face of declining diesel and gasoline demand was a pretty tough one,” said Mark Lashier, chief executive of Houston-based Phillips 66.

Newsom Softens Tone Toward Oil Companies

The refinery closures present a political liability for Governor Gavin Newsom, who has been working to build a national profile ahead of the 2028 presidential election. A year ago, he was calling oil companies liars and “the polluted heart of this climate crisis.”

Recently, though, his rhetoric has shifted.

“We’re trying to find some balance,” Mr. Newsom said at a July news conference, referring to California’s long-term environmental goals and the need to keep energy costs low in the short term.

Policy Delays and Negotiations

Last month, the California Energy Commission voted to delay the profit-margin cap until at least 2030. Officials have also begun negotiations with Valero over the Benicia plant’s future.

“It’s not going to be a smooth market solution,” said Siva Gunda, vice chair of the commission. “The government will need to work together to ensure those transitions are not lumpy.”

Local Communities Feel the Impact

Beyond the potential effects on prices at the pump, refinery closures have local economic consequences. Benicia is bracing for a roughly 13 percent hit to its general fund if the Valero refinery closes, said Mario Giuliani, the city manager.

“We’re in this quandary of: We want to continue to reduce our dependence on fossil fuels, yet we’re not there yet,” Mr. Giuliani said. “California policy has essentially gotten too ahead of the market.”

A Transition With Real-World Costs

California oil refineries are closing because demand is shrinking, but when a refinery shuts down, supply disappears at once. The state’s experience illustrates the complex challenges of shifting from one energy source to another. Even as electric cars and renewable fuels gain ground, traditional infrastructure remains essential to meeting current demand.

For now, California’s leaders are trying to manage that tension — balancing ambitious climate goals with the economic and political pressures created by high fuel prices.

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