California scrambles to find solutions for rising gas prices as departing refineries could cut supply by 20%
As of June 6, the average gas price in California for regular fuel was $4.72 per gallon, according to AAA, making it the most expensive place to fuel up in the country.
However, Golden State drivers could be in for even more pain in the near future when it comes to paying for fuel.
That's because some experts believe gas prices in the state could rise significantly following the impending wind-down of two major refineries if lawmakers don't intervene soon.
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In October, Phillips 66 announced plans to shut down its Los Angeles-area refinery in late 2025. Valero, meanwhile, said in April it intends to 'idle, restructure, or cease refining operations' at its Benicia, California, refinery by April 2026.
Phillips 66 says its decision was due to uncertainty about the refinery's 'long-term sustainability.' Valero cited 'the uncertainties that remain with respect to current or contemplated legal, political or regulatory developments that are adverse to or restrict refining and marketing operations' as a diver of its decision. The company was also hit with a record $82 million fine by the Bay Area Air Quality Management District last year after regulators uncovered a long history of unreported toxic emissions.
On May 28, Petroleum Market Oversight Director Tai Milder, California Energy Commission Vice Chairman Siva Gunda and California Air Resources Board Chair Liane Randolph testified before state lawmakers. The regulators were put on the hot seat, as lawmakers wondered if they were plunging California into a gas crisis.
'We have a crisis on our hands that may have been self-created by the actions that have been taken, perhaps by the state, by regulators,' assemblymember David Alvarez said during the meeting.
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According to CBS News, closures of these refineries could lead to a 20% reduction in California's gas supply. Experts say this could have a major impact at the pumps.
'I think if we are not prepared for the closure of these two refineries, we could see a very abrupt increase in prices,' Severin Borenstein, UC Berkeley professor and director of the Energy Institute at Haas, told the broadcaster. 'That is a real threat right now. California needs to get out ahead of it. This is a fire drill, this is not a long-term planning problem.'
A report by USC professor Michael Mische warned that California gas prices could rise to an estimated average of $7.348 to $8.435 by the end of 2026 if both refineries shut down. Upon their closure, the state would have to import more gas, and in the absence of inbound pipelines to California, it would cost even more to bring gas to residents, fueling higher prices.
Additionally, the report stated that California retail gas prices are routinely 40% to 50% higher than the national average. State regulatory fees and taxes add a significant amount to the price of gas per gallon. Even without the closures of the two refineries, the report estimates the price could potentially increase by $1.18 per gallon.
Similar to the sentiments of Alvarez, the report calls the state's gas crisis largely "self-created." Despite more cars being on the road, the number of refineries in the state has dropped over the last 30 to 50 years. Meanwhile, the report says regulatory costs affecting refiners, distributors and local operators have had a compounding effect on retail prices.
The report included a number of suggestions, such as incentivizing Phillips 66 and Valero to remain in the state and relaxing regulations. For example, Executive Order N79-20, which is set to take effect in 2035, bans the sale of new gas-powered vehicles. Bill Abx2-1 allows regulators in California to set minimum petroleum inventory levels for refineries located in the state. And so on.
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