California drivers currently pay the nation’s highest fuel prices. Gasoline prices average about $4.85 a gallon, with a national average of $3.16. Now, two announced major refinery closures, Phillips 66 in Los Angeles by the end of 2025 and Valero’s Benicia refinery by April 2026, have the potential to push prices as high as $8 a gallon by the end of 2026, at record highs.
The closures will eliminate almost 20% of the state’s refining capacity, contributing to a severe supply issue with a constant demand of 13.1 million gallons/day. The stakes are high: economic consequences, job losses, and a fuel supply problem.
Why Are These Refineries Closing?
California’s strict environmental laws and expensive compliance requirements directly cause the closures, which are not arbitrary. Phillips 66 stated that the exorbitant expenses and regulatory obstacles were unsustainable, and Valero was fined $82 million for air quality violations in 2024.
Refiners have found it unprofitable to operate in California as a result of these environmental protection regulations. As a result of the unfriendly regulatory climate, industry titans are bailing out, reducing local refining capacity, and raising prices.
Job Losses’ Economic Shockwave
The shutdowns endanger thousands of jobs and fuel prices. Phillips 66 utilizes about nine hundred employees and contractors, while Valero has about four hundred.
In addition to jobs and taxes that contribute to local economies, there are human costs as the workers live, shop, and economically contribute to their communities.
I know State Assemblymember Mike Gipson emphasized human costs. The loss of these jobs will increase economic pain in already vulnerable areas, contributing to the social effects of higher fuel costs.
California’s Refining Capacity: A Critical Vulnerability
California supplies only about 24% of the crude oil it consumes but demands over 13 million gallons of gasoline daily. Removing some 300,000 barrels per day of refining capacity from these refineries would immediately reduce refining capacity by 8.9% and cumulatively by 21% by April 2026.
This deficit cannot be absorbed without severe price hikes or supply disruption, as the state is geographically removed from other U.S. refining hubs and is also not pipeline-connected.
The Hidden Price Of Import Dependency
With fewer refineries operating in California, the state will depend more on importing finished fuel from other regions of the United States and other countries, especially Asian countries.
The irony is that tankers engaging in such overseas transport increase shipping costs and tanker vessel emissions, posing a direct contradiction to California’s environmental goals. In some cases, the funneling of emissions from refineries could be done illegally under a much more relaxed environmental law framework in the places where fuel is produced and imported.
It is an ironic paradox: strict limitations might force actual production to move abroad, whereas less strict alternatives in the past might have ensured some level of domestic output.
Market Dynamics and Price Forecasts
USC Professor Michael Mische’s estimates put gasoline prices increasing by $7.35 to $8.43 per gallon by late 2026 with stable crude prices. The Phillips 66 shutdown alone can drive prices to $6.43 by late 2025.
The estimates consider a supply-demand imbalance and increased importation costs. Market price volatility can drive prices even higher, and given the remote fuel market and state regulations, price increases cannot be avoided.
The Other Side: Market Reality vs. Regulations
The closures illustrate market realities, and not all are favorable. If conducting, the environmental community suggests these regulations are necessary to meet climate objectives.
On the contrary, the state’s policies have not only de facto concentrated refining capacity in fewer hands (all of which are still in the state) but also diminished competition amongst refiners and raised prices for the remaining refiners.
This reinforces a call for an applicable policy realignment between pressing economic concerns, pressing energy security issues, and the requirements of the environment.
Broader Economic and Social Impacts
Increased gas prices will have a further impact on businesses, as they are affected by higher transport costs. They will no doubt pass these higher costs on to consumers for all goods and services, from producers to consumers throughout the state.
Californians with lower incomes will suffer disproportionately from the shutdowns, exacerbating inflationary pressures. California’s fuel security and economic stability are experiencing further challenges related to the new wave of reliance on energy in other ways.
Potential Policy Responses and Industry Adaptations
California is facing a tough decision: It can either ease up on some regulations to keep its refineries running or push really hard to reduce fuel demand by getting more electric vehicles and alternative fuels on the road. Neither option is simple.
While making refineries cleaner is a good idea, it takes time and money. In the meantime, policymakers expect to deal with the pain of the short run and will need to change carefully to avoid significant gaps in supply and economic upheaval.
Charting A Path through Uncertainty In Energy Transition
The shutdown of California’s two biggest oil refineries is simply a marker in time, revealing the conflict between the state’s greenhouse gas reduction goals and its reliance on fossil fuels.
Barring collective action, Californians can anticipate gasoline prices nearing $8 per gallon, unemployment, and increasing import dependence. The crisis demands balanced solutions that blend environmental ambition with pragmatic energy policy to advance supply security with sustainability.
Going forward requires honesty about trade-offs and a willingness to innovate beyond regulatory conventional wisdom to save people and the planet.