By Jonathan Eberle |
California is poised to lose a significant portion of its oil refining capacity by the end of 2026, as Valero announced the closure of its Benicia refinery—its second largest in the state—just months after Phillips 66 declared plans to shut down its Los Angeles facility. Together, the closures will eliminate roughly 17.4% of California’s total refining output, a shift expected to ripple beyond state borders, potentially triggering gasoline price spikes and supply disruptions in neighboring Arizona and Nevada.
These developments come on the heels of new state regulations introduced under Governor Gavin Newsom, which impose strict oversight on refinery operations. The rules limit when refineries can conduct maintenance, mandate increased inventory storage, and aim to curb perceived “price manipulation.” However, the energy industry and regional leaders argue these measures are accelerating refinery shutdowns and undermining fuel stability across the Southwest.
California operates as an “energy island,” with limited ability to import refined fuel from other U.S. regions due to the federal Jones Act, which restricts domestic shipping to U.S.-built and -crewed vessels. With U.S. shipbuilding capacity far behind that of countries like China, domestic maritime transport remains scarce and costly. As a result, California will increasingly rely on foreign tanker ships for fuel imports—an emissions-intensive, volatile, and expensive solution.
Governor Newsom claims California’s high gas prices are due to refinery “price gouging,” despite his own administration’s lack of evidence. His regulatory push has faced bipartisan opposition, including a joint letter from Arizona Governor Katie Hobbs and Nevada Governor Joe Lombardo warning that new refinery laws could lead to “higher costs for consumers” in all three states. Chevron echoed this concern, stating that the regulations would increase both the likelihood and duration of fuel shortages, while permanently raising consumer prices.
Refineries in California are already operating at or near full capacity. With no new facilities planned—especially as the state pushes to ban new gas-powered car sales by 2035—any closure tightens supply margins. The upcoming shutdowns will reduce daily refining capacity to 1.34 million barrels, well below the state’s consumption level of 1.8 million barrels per day, necessitating a shortfall of over 140 million barrels per year.
Due to California’s requirement for a specialized gasoline blend, few out-of-state refiners can meet demand, further narrowing supply options. These vulnerabilities were recently exposed when the temporary shutdown of the Martinez refinery sent gas prices soaring across the region, including in Arizona and Nevada.
With California gas prices already the nation’s highest—averaging $4.86 per gallon—experts warn that future supply shocks could bring about even more dramatic volatility and potential fuel shortages across the Southwest.
Jonathan Eberle is a reporter for AZ Free News. You can send him news tips using this link.
