California is exploring the possibility of state ownership of oil refineries as part of a broader strategy to address potential gasoline supply shortages. This consideration comes in light of declining gasoline demand and the anticipated closure of several refineries in the state. The California Energy Commission has presented a list of options to ensure a reliable supply of transportation fuels, with state ownership being one of the more radical proposals on the table.
Skip York, chief energy strategist at Turner Mason & Co., highlighted the urgency of the situation, noting that the state is on a path toward more refinery closures. As oil companies reduce their operations in California, there is a growing concern that gasoline supplies could dwindle faster than the decline in consumer demand, leading to higher prices and potential fuel shortages.
Gasoline consumption in California has been on a gradual decline since it peaked in 2005, largely due to advancements in fuel efficiency and the rising popularity of electric vehicles. Currently, electric vehicles account for about 25% of new car sales in the state, and a state mandate will ban the sale of new gasoline-powered vehicles by 2035. This shift is prompting major refiners like Chevron, Marathon, Phillips 66, PBF Energy, and Valero to reevaluate their operations.
Two California refineries have already ceased gasoline production to focus on biodiesel, a cleaner alternative supported by state subsidies. Worryingly, the Phillips 66 refinery complex in Wilmington, located near Los Angeles, plans to shut down permanently by the end of the year. This leaves only eight major refineries in the state capable of producing gasoline, and the closure of any one of them could create significant supply issues.
The California Energy Commission’s options extend beyond state ownership. They include increasing gasoline imports from Asia, regulating refineries similarly to electric utilities, and capping profit margins. However, California’s unique status as a "gasoline island" complicates matters, as it lacks the inter-state logistics networks that could help mitigate supply shocks. Currently, only 8% of California’s gasoline supply comes from imports, with the remaining 92% produced within the state.
The special blends of gasoline required in California, designed to reduce air pollution, further complicate the situation. While they help improve air quality, these formulations also increase prices and the risk of shortages, as few other regions produce similar gasoline.
Industry experts warn that state involvement in refinery management could be challenging. The Western States Petroleum Association cautioned that operating a refinery requires a deep understanding of both commercial and technical aspects of the industry. Governor Gavin Newsom’s office has emphasized that California is committed to a thoughtful transition away from fossil fuels over the next two decades, rather than an abrupt shift.
Some state lawmakers, particularly from the Republican side, have criticized the pace of California’s response to potential gasoline shortages. They argue that regulatory pressures have driven refineries away, and now the state is considering taking over operations to secure supply. Assembly Republican leader James Gallagher expressed concern that the state should instead focus on building new refineries to meet demand, rather than relying on imports.
As the discussion continues, the California Energy Commission has until December 31, 2024, to develop a formal transition plan addressing these challenges. However, with several refineries on the brink of closure, the state’s response remains uncertain. The looming threat of gasoline supply issues underscores the urgency for policymakers to find viable solutions as California navigates its energy future.