California in Crisis: Governor’s Alarm as Phillips 66 Gas Refinery Begins Shutdown!
California is bracing for a significant disruption in its fuel supply as Phillips 66 announces the shutdown of its Los Angeles refinery, which will result in the loss of 139,000 barrels per day of gasoline production. This closure is set to take place in phases through December, with the entire operation permanently offline by the end of the year. The implications of this shutdown are profound, as it represents 8.3% of California’s total refining capacity, leaving 600 employees and 300 contractors facing job losses just before the New Year.
The Impact of the Shutdown
Phillips 66 revealed this decision back in October, citing “market dynamics” as a driving factor. However, knowing the shutdown was coming does not lessen the impact on the state’s fuel supply. California now faces the daunting challenge of replacing 1.3 billion gallons of gasoline annually that the refinery produced. Currently, the state imports about 1.1 billion gallons per year, accounting for 8% of its supply. With the Phillips 66 closure, that import dependency will jump to 17%.
Skip York, chief energy strategist for Turner Mason and Company, emphasized the urgency of the situation: “California needs to understand where their gas will now come from.” Vessel tracking data indicates that California has already hit a four-year high in gasoline imports, with a significant portion coming from South Korea and other Asian exporters.
Rising Import Dependency
As California grapples with the loss of local refining capacity, the state’s reliance on imported fuel is increasing. The Phillips 66 shutdown is just one part of a broader trend; another major refinery, Valero’s Benicia facility near San Francisco, is set to close in April 2026, which will further reduce California’s refining capacity by an additional 145,000 barrels per day. Combined, these two closures will remove about 20% of California’s total refining capacity—290,000 barrels per day—within a six-month window.
The state operates as what analysts call a “fuel island,” meaning that every drop of imported gasoline must arrive by ocean tanker. This unique situation presents vulnerabilities, especially as California lacks pipelines connecting it to other refining regions, such as Texas or the Gulf Coast. The Jones Act complicates matters further, making it prohibitively expensive to ship between U.S. ports unless American-flagged vessels are used.
The Consequences of a Shutdown
Experts warn that if California cannot replace the lost production from Phillips 66, the state could face severe consequences, particularly during the summer driving season. Ryan Cummings from the Stanford Institute for Economic Policy Research stated, “If there is no increase in import capacity to replace that lost production, especially heading into summer driving season, you are going to see a material increase in prices.”
Wholesale rack prices are already experiencing rapid daily swings as traders react to tightening supply. Some reports indicate that wholesale margins have jumped to more than 90 cents per gallon—more than double typical levels—due to reduced output and delays in replenishing supply through imports.
According to Mansfield Energy’s analysis, California gasoline prices averaged $4.68 per gallon when imports peaked in May, while the national average was significantly lower at $3.12. This disparity of $1.56 per gallon highlights the challenges Californians face as the state navigates its increasing dependency on imported fuel.
Environmental and Economic Implications
The environmental costs of California’s import dependency are significant. Tankers, which account for over 95% of California’s inbound crude and gasoline supplies, burn heavy fuel oil, emitting approximately 50% more carbon dioxide per barrel mile than pipelines or rail. This reliance on maritime transport not only raises costs but also heightens the environmental impact of fuel delivery.
As California attempts to increase its imports, it faces the challenge of managing compliance with new regulations requiring tankers to use shore power electricity while at birth. If importers encounter compliance issues, it could further constrain the flow of imports and inflate costs for consumers.
The Future of California’s Fuel Supply
Looking ahead, California’s refining capacity is shrinking faster than its fuel demand is declining, forcing the state into a long-term import-dependent position. The California Energy Commission projects that as much as 30% of the state’s gasoline demand will need to come from imports by 2026, particularly in the northern half of the state.
The state’s unique situation—characterized by no pipelines, special fuel blends, declining refinery capacity, and increasing import dependency—creates a perfect storm for sustained higher prices. As Phillips 66 winds down operations this month, California enters uncharted territory. The transformation from a fuel-producing state to a fuel-importing state will be felt at every gas pump.
Conclusion
In conclusion, the shutdown of the Phillips 66 refinery is a critical moment for California, highlighting the state’s vulnerability in its fuel supply chain. With significant job losses on the horizon and a looming increase in fuel prices, the consequences of this closure will reverberate throughout the state.
As California navigates this crisis, it must find ways to bolster its import capacity and address the challenges posed by its unique geographic and regulatory landscape. The future of fuel supply in California is uncertain, and the state’s residents are left to grapple with the realities of a changing energy landscape.
As the situation develops, all eyes will be on California’s leaders to see how they respond to this unprecedented challenge and whether they can secure a stable and affordable fuel supply for the future.
