California is contemplating a bold move towards state ownership of oil refineries as policymakers seek solutions to potential gasoline supply shortages. This consideration arises amid a backdrop of declining gasoline demand and an anticipated wave of refinery closures in the state. The California Energy Commission has presented this option as part of a broader strategy to secure a reliable supply of affordable transportation fuels.
With a gradual decrease in gasoline consumption—down 15% since its peak in 2005—California faces a unique challenge. Factors such as improved fuel efficiency and the growing prevalence of electric vehicles have contributed to this decline. Currently, electric vehicles account for approximately 25% of annual new car sales, and a state mandate prohibits the sale of new gasoline-powered cars starting in 2035. As traditional oil companies like Chevron, Marathon, Phillips 66, PBF Energy, and Valero reassess their operations, the state is bracing for potential disruptions in fuel availability.
The imminent closure of the Phillips 66 refinery complex in Wilmington, near Los Angeles, is particularly alarming. This facility is set to cease gasoline production by the end of the year, leaving only eight major refineries capable of supplying fuel to California. Industry analysts warn that the closure of any additional refineries could lead to significant supply issues, as the state lacks a robust logistics network to import gasoline from other regions. Currently, only 8% of California’s gasoline supply comes from imports, with the remainder produced locally.
The situation is exacerbated by California’s unique gasoline formulations, which, while effective in reducing air pollution, complicate supply logistics and contribute to higher prices. The Western States Petroleum Association has expressed skepticism about the feasibility of state-owned refineries, citing the complexities of running such operations and the need for specialized knowledge.
California Governor Gavin Newsom’s office has acknowledged the challenges associated with state ownership of refineries, including high operational costs and the skilled labor required to manage them. Meanwhile, some lawmakers, particularly from the Republican Party, argue that the state is moving too slowly to address the looming gasoline shortages. They contend that the regulatory environment in California has made it increasingly difficult for refineries to operate profitably.
As discussions continue, the California Energy Commission is expected to present a formal transition plan by the end of 2024. However, with the potential for further refinery closures on the horizon, the urgency of the situation is growing. Lawmakers are debating various options, ranging from state ownership of refineries to increasing gasoline imports from Asia, as they seek to ensure that California does not face a crisis in fuel availability.
In this evolving landscape, the future of California’s gasoline supply remains uncertain, with state officials and industry stakeholders grappling with the implications of declining refinery operations and shifting consumer demands. The outcome of these discussions could have significant ramifications for both the state’s economy and its residents’ access to fuel.