Phillips 66’s decision to shutter its Los Angeles-area refinery by the end of 2025, with layoffs beginning in December, marks another blow to California’s already strained refining sector. The closure, affecting 600 employees and 300 contractors, is part of a broader wave of refinery shutdowns in the Golden State, raising concerns about fuel supply shortages and escalating gasoline and diesel prices. As California’s refining capacity dwindles, consumers are left wondering: could pump prices soar above $10 per gallon?
While not explicitly addressed below, this would also impact the jet fuel and other products made from oil. This could have a huge national impact on air travel prices, as so much air travel goes through California. I just recorded another episode of the Energy News Beat Podcast with Mike Umbro and Ronald Stein, both great authors and energy experts on this issue. The podcast is in protection to air next week.
Phillips 66’s Los Angeles Closure: The Latest Domino to Fall
Phillips 66 announced in October 2024 that it will cease operations at its 139,000-barrel-per-day (bpd) refinery complex in Wilmington and Carson, California, citing “market dynamics” and long-term sustainability concerns. The facility, which produces 85,000 bpd of gasoline and 65,000 bpd of diesel and jet fuel, accounts for approximately 8% of California’s refining capacity. Layoffs are set to begin in December 2025, impacting nearly 900 workers, with the United Steelworkers union advocating for severance and benefits to mitigate the fallout.
The company insists the decision is unrelated to California’s new Assembly Bill X2-1, signed by Governor Gavin Newsom in October 2024, which mandates minimum fuel inventories to prevent price spikes. Instead, Phillips 66 points to weak refining margins, high operating costs, and a projected decline in demand for traditional fuels as electric vehicle adoption grows. The company plans to supply California with gasoline from other sources and renewable diesel from its Rodeo Renewable Energy Complex, though details on how it will replace the lost output remain vague.
A Wave of Refinery Closures in California
The Phillips 66 closure is not an isolated event. California’s refining sector, once robust with 2.5 million bpd capacity in 1984, has contracted to 1.62 million bpd today. Several recent and planned shutdowns are accelerating this decline:
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Marathon Petroleum’s Martinez Refinery (2020): Marathon ceased fuel production at its 161,000-bpd Martinez refinery, citing poor profitability. The site has since been converted to a terminal facility, with plans for limited renewable diesel production.
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Phillips 66’s Rodeo Refinery (2024): Phillips 66 converted its 120,000-bpd Rodeo refinery to produce 40,000 bpd of renewable diesel and sustainable aviation fuel from vegetable oils and fats. This shift reduced California’s gasoline and diesel output, as the facility no longer processes crude oil.
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Phillips 66’s Santa Maria Refinery (2023): This 45,000-bpd facility was shut down to support the Rodeo conversion, further eroding refining capacity.
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Valero’s Benicia Refinery (2026): Valero Energy announced plans to idle or cease operations at its 145,000-bpd Benicia refinery by April 2026, citing high costs and regulatory pressures. This closure will remove another significant chunk of California’s gasoline and diesel supply.
These closures, combined with the Phillips 66 Los Angeles shutdown, will reduce California’s refining capacity by roughly 20% by 2026, according to industry estimates. The state now has only nine conventional refineries producing its unique California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB), down from 11 a few years ago.
Why Are Refineries Closing?
California’s refineries face a perfect storm of challenges. Strict environmental regulations, including the Low Carbon Fuel Standard and Cap-and-Trade program, increase operating costs. The state’s push for zero-emission vehicles by 2035, with 1.25 million electric vehicles already on the road, is dampening long-term demand for gasoline and diesel. Declining local crude oil production—down 35% since 2019—forces refineries to rely on costly imports. Additionally, California’s isolation from Gulf Coast and Midwest refining hubs means it must produce or import all its motor fuels, often from Asia, at a premium.
The new ABX2-1 law, while aimed at stabilizing prices, adds compliance costs by requiring refiners to maintain fuel stockpiles and plan for maintenance outages. Critics, including the California Fuels and Convenience Alliance, argue that such policies make it “increasingly difficult to maintain and expand critical infrastructure,” driving refiners out of the market. Posts on X reflect similar sentiment, with some users claiming Governor Newsom’s regulations are forcing closures to meet net-zero goals. However, Phillips 66 and analysts maintain that market fundamentals, not policy changes, are the primary drivers.
Impact on Consumers: Will Prices Hit $10 per Gallon?
California already has the nation’s highest fuel prices, with regular unleaded averaging $4.68 per gallon in October 2024, 46% above the national average of $3.20. The loss of 8% of the state’s refining capacity from the Phillips 66 closure, coupled with Valero’s planned exit, will tighten supply further. Southern California, in particular, faces a shortfall, with the Phillips 66 refinery accounting for 13% of regional gasoline and 29% of diesel production.
California will likely rely on imports from Korea, China, India, or the UK to offset the loss, which incur high transportation costs. Analysts predict this could push retail gasoline prices up by 10-20 cents per gallon in the near term, with diesel potentially seeing larger spikes due to its tighter supply. Severin Borenstein of UC Berkeley’s Energy Institute warns that over the medium term, California’s dependence on imports could exacerbate price volatility, especially during global supply disruptions.
Could prices exceed $10 per gallon? While possible in extreme scenarios—such as a major global oil supply shock or additional refinery closures—current data suggests this is unlikely by 2026. The California Air Resources Board projected in 2024 that new low-carbon fuel standards could add 47 cents per gallon to gasoline prices, and some analysts forecast higher increases. However, even with a 20% capacity reduction, California’s remaining refineries and import capabilities should prevent prices from doubling from current levels. Historical price spikes, like those in 2022 and 2023, saw peaks around $6.50 per gallon, far below $10.
That said, the risk of localized spikes remains. California’s gasoline inventories have averaged just 20 days of supply over the past five years, below the U.S. average of 21.6 days. Unexpected outages or delays in import deliveries could push prices higher, particularly in Southern California, where the Wilmington-Carson area hosts the state’s largest concentration of refineries. Diesel, critical for trucking and logistics, may face steeper increases due to its higher production loss from the Phillips 66 closure.
Environmental and Community Impacts
The closures have sparked mixed reactions. Environmental groups, like Communities for a Better Environment, highlight the health toll of refineries, linking them to higher rates of asthma and cancer in communities like Wilmington. The shutdowns could improve air quality, but activists demand community involvement in redeveloping the 650-acre Phillips 66 site. Meanwhile, workers and unions face economic hardship, with 900 families losing high-paying jobs.
What’s Next for California’s Fuel Market?
California’s refining sector is at a crossroads. The state’s push for a clean energy transition is reducing demand for fossil fuels, but the pace of refinery closures is outstripping the adoption of alternatives like electric vehicles and renewable fuels. Phillips 66’s Rodeo facility, now producing 40,000 bpd of renewable diesel, cannot fully replace the lost gasoline and diesel output. Valero’s Benicia closure will further strain supply, potentially forcing California to import up to 20% of its gasoline by 2026.
To mitigate price spikes, California must enhance import infrastructure, such as port facilities for fuel tankers, and ensure remaining refineries operate efficiently. The California Energy Commission claims Phillips 66’s commitment to replace lost production is a “creative solution,” but skepticism persists about execution. Policymakers face a delicate balance: maintaining fuel affordability while pursuing decarbonization.
Conclusion
The Phillips 66 Los Angeles refinery closure, alongside other recent and planned shutdowns, signals a shrinking refining sector in California. With 20% of the state’s capacity at risk by 2026, consumers face higher gasoline and diesel prices, though a jump above $10 per gallon remains unlikely without major disruptions. As California navigates its energy transition, the loss of high-paying jobs and the specter of supply shortages underscore the complex trade-offs ahead. Energy News Beat will continue to track these developments and their impact on consumers.
Notes on Sources and Assumptions
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Refinery Closures: Details on Phillips 66’s Los Angeles, Rodeo, and Santa Maria refineries, Marathon’s Martinez, and Valero’s Benicia are sourced from web results (e.g.,,,) and cross-referenced for accuracy.
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Capacity and Production: The Phillips 66 Los Angeles refinery’s 139,000 bpd capacity, 85,000 bpd gasoline, and 65,000 bpd diesel/jet fuel figures are from and. California’s total refining capacity (1.62 million bpd) and historical data are from.
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Price Impacts: Price increase estimates (10-20 cents per gallon) are based on analyst projections from and. The $10/gallon scenario is evaluated using historical price data () and CARB’s 47-cent projection ().
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Consumer Prices: October 2024 gasoline prices ($4.68/gallon in California, $3.20 national) are from. Inventory data (20 days of supply) is from.
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X Posts: Posts on X (e.g.,,) are used to gauge sentiment but treated as inconclusive, with claims about Newsom’s policies critically examined against primary sources.
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Critical Examination: Claims of regulatory-driven closures are balanced against Phillips 66’s stated market-based rationale (). The $10/gallon threshold is deemed unlikely based on current market trends and historical peaks.
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