The energy crisis hits California as two refineries close their doors. The two affected are Phillips 66 in Los Angeles and Valero Energy in Benicia. Due to environmental regulations, cap and trade, and fuels from the Gulf of Mexico, oil and gasoline prices are rising. Faced with the demand for fossil fuels and the inclusion of electric vehicles, California must restructure its energy plan for the coming years and its impact on the economic life of its citizens. Read on to learn more.
The state of California: gasoline prices could reach between $7.35 and $8.43 per gallon by the end of 2025
A recent report has sounded the alarm in the state of California due to the fact that gasoline prices could reach among $7.35 and $8.43 per gallon by the end of 2026.
This projection exemplifies a growth of more than 75% over the current average, and is becuase pf a mix of structural, regulatory and logistical components straight forward resulting fuel production and distribution.
Closure of key refineries
One of the main triggers for the projected increase is the programmed closure of two major refineries: Phillips 66 in Los Angeles and Valero in Benicia. These facilities are the example close to the 20% of the state’s refining capacity. Their exit from the market will really reduce the supply of gasoline, producing an imbalance among production and consumption.
California consumes more than 13 million gallons of gasoline aper day, however, it produces less than 24% of its own crude. The loss of refining capacity will not be cancelled by a drop in demand, leading to shortages and pressure on prices.
Stricter environmental regulations
Additionaly to refinery closures, companies are fronting progressively stringent environmental regulations. The cap-and-trade program, state taxes and proposed modifications to the low carbon fuel standard (LCFS) are driving up operating costs. By the time these measures seek to decrease emissions, they also directly repercusion the final price paid by consumers.
Valero cited multimillion-dollar fines and regulatory pressure as reasons for leaving the state, at the time Phillips 66 noted that “it is no longer viable to do business in California” under current conditions.
Logistical problems and external dependence
With fewer refineries operating, California will rely more on shipping to import gasoline from other regions, such as the Gulf of Mexico or Asia. This logistics implies extra costs in transportation, storage and energy security.
Any disruption to shipping – like hurricanes, geopolitical conflicts or port strikes – could aggravate the situation and lead to sudden price growth.
Impact on consumers
Californian drivers already pay the highest prices in the country for gasoline. An increase to $8 a gallon would have a devastating repercusion on household budgets, in specific for those who depends on cars for work or daily commuting.
The price of maintaining mandatory gasoline reserves will also be passed on to the consumer, as refineries must store between 14 and 16 days’ supply as a safety measure.
Are there any solutions in sight?
Proffesional caution that without state or federal intervention, the projected scenario is hard to avoid. Some proposals take into account incentives to maintain refineries open, relaxing determined regulations and accelerating the transition to electric vehicles.
Nevertheless, these solutions need time, investment and political consensus, making rising prices a real threat in the next years.
California is at an energy crossroads. The combination of lower refining capacity, stringent regulations, external dependence and high demand might lead to an non-precedent scenario in 2026. Consumers, businesses and authorities will have to get ready for a more expensive, volatile and complex fuel market.
Refinery closures present risk for higher gasoline prices on the West Coast
California is set to lose 17% of its oil refinery capacity over the next 12 months because of two planned refinery closures. If realized, the closure of the facilities is likely to contribute to increases in fuel price volatility on the West Coast.
Phillips 66 announced plans last October to close its 139,000-barrel-per-day (b/d) Wilmington refinery in the Los Angeles area later this year. Valero submitted a notice in April to end refining operations at its 145,000-b/d Benicia refinery in the Bay Area by the end of April 2026. The refinery closures continue a trend of decreasing refinery capacity on the West Coast, following the end of petroleum refining operations at Phillips 66’s Rodeo refinery early last year and the closure of Marathon’s Martinez refinery in 2020.
California usually has higher retail gasoline prices compared with the national average. One reason is the relative lack of logistical connectivity on the West Coast to other refinery hubs in the United States, such as the Gulf Coast.
