California Refinery Situation Worsens by the Day As Newsom Belatedly Tries to Backpedal and Doublespeak

Guest Post from the Institute for Energy Research.

Valero announced that it plans to close its San Francisco-area oil refinery in Benicia, California next year. It submitted a notice to the California Energy Commission of its intent to idle, restructure, or cease operations at the refinery, whose average throughput capacity is 145,000 barrels per day, by April 2026.

The Valero refinery closure will reduce the state’s gasoline production capacity by nearly 9% and affect more than 400 jobs. Refiners in California are facing growing regulatory and cost pressures due to the state’s emissions targets, policies relating to sales of gasoline vehicles, and refinery transparency rules.

A state law recently signed by Governor Gavin Newsom requires refineries to keep stockpiles of fuel on hand to limit price spikes, which resulted in an announcement by Phillips 66 to close its Los Angeles refinery. Valero is also weighing strategic options for its 91,300 barrel-per-day, Los Angeles-area refinery.

The Benicia facility (Google Earth aerial view below) is the second California refinery to announce its plans to close within the last six months. Phillips 66 announced in October 2024 it would shut down its 139,000 barrel-per-day, Los Angeles-area refinery, which employed about 600 workers and 300 contractors.

The number of refineries in California processing oil has been shrinking with companies citing increased regulation, like the state’s plans to ban the sale of gasoline-powered automobiles by 2035. Six plants have shut since 2008. Two of those have converted from producing petroleum-based diesel to renewable diesel, for which refiners can make an additional $3.70 per gallon in California via subsidies.

The Energy Information Administration expects U.S. refinery capacity to be 17.9 million bpd at the end of 2025, about 3% less than at the beginning of 2024, with LyondellBasell’s Houston oil refinery closing, and the Los Angeles refinery of Phillips 66 shutting down operations.

Valero took a combined pre-tax impairment charge of $1.1 billion for its California operations at the Benicia and Wilmington refineries. The charge is expected to be treated as a special item and excluded from the adjusted earnings for the first quarter of 2025. Also included in the amount is the expected asset retirement obligations of $337 million as of March 31, 2025.

According to Assembly Republican Leader James Gallagher, “Once again, Californians are paying the price for Newsom’s incompetence and self-serving attacks on energy producers. Unless the state changes course, the job losses and gas price increases are only going to get worse.”

Governor Newsom has expressed a willingness to work with refiners. As refinery producers announce more closures, Newsom has instructed the California Energy Commission to coordinate with oil refiners to preserve in-state fuel production and ensure supply availability, with policy recommendations due by July 1.

According to Newsom, “California will continue to lead the way in this transition, but it’s imperative that we continue to ensure a safe, affordable and reliable supply of transportation fuels over the next two decades.”

Californians pay the highest gasoline prices in the United States. On April 23, 2025, it was $4.82 a gallon, 52% higher than the national average of $3.17. Californians pay the highest prices in the nation for gasoline because of the state’s climate-justified taxes, fees, regulations, and special gasoline blends, which no other state requires, not the long-held belief of Governor Newsom that it is price gouging on behalf of oil companies.

California’s special summer and winter gas blends and its gas taxes, which are the highest in the country, add about $1.40 to every gallon of gas sold in the state.

Due to its policies, California’s oil output has been dropping for most of the past four decades while other states such as Texas and New Mexico have seen oil production rise. Since 2019, California Governor Gavin Newsom has added laws and regulations against oil production and refining. He called for the state to ban sales of new gasoline-powered vehicles by 2035.

In 2022, California passed a law banning oil and gas drilling within 3,200 feet of structures including homes, schools, and hospitals, despite oil production occurring before these structures were built in many cases. In 2022, California regulators approved a plan to reduce the state’s carbon-dioxide emissions by 85 percent from 1990 levels by 2045, including a reduction in oil and gas consumption to less than one-tenth of current demand.

Regulatory goals such as this do not help convince manufacturers of petroleum products to remain open or to invest more in their facilities.

In September 2023, Newsom’s administration filed a lawsuit targeting the oil industry for “lying to consumers for more than 50 years” about climate change. He signed into law a bill seeking to hold Chevron and other refiners liable for allegedly price-gouging consumers.

California bill SB X1-2 authorizes the state energy commission to determine an acceptable profit margin for in-state refiners and penalize those that exceed it. More recently, bill AB X2-1 has mandated increased reporting requirements by the state’s refiners.

Conclusion

Refiners find they cannot survive in California with Governor Newsom’s policies against oil companies and their oil and gasoline production.

Valero just announced the likely closure of its refinery in the San Francisco area by April 2026, the second of such announcements in the past 6 months with Phillips 66 having already announced the closure of its Los Angeles area refinery.

California’s gasoline prices are currently around $1.60 more a gallon than the national average. While Governor Newsom likes to say it is due to price gouging, California’s gas taxes, boutique fuel blends, and other requirements add about $1.40 per gallon to the price of gasoline.

Among other policies under Newsom, the state has plans to phase out the sale of gasoline cars by 2035. This move requires a waiver from the federal government, which just might be withdrawn if Congress includes the waiver in the Congressional Review Act it is currently working on.

Editor’s Note: Sounds like refinery owners have read Atlas Shrugged and have found John Galt within themselves.

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