California refineries, imported crude oil and refined fuels.
California's refinery landscape is poised for significant change over the next year, with major capacity reductions expected by 2026. This report examines the current refining capacity in California and analyzes the projected changes due to announced refinery closures, their causes, and potential implications for the state's fuel supply and prices. The report also explores domestic and international sources of crude oil used by California refineries.
Current Refinery Capacity in California
As of early 2024, California's total petroleum refining capacity stands at approximately 1.68 million barrels per calendar day. This capacity is distributed across multiple refineries throughout the state, primarily concentrated near major population centers in the San Francisco Bay Area and Los Angeles region. According to the California Energy Commission (CEC), this capacity represents a significant decline from historical levels, as the state's refining capacity has decreased from 2.5 million barrels per day in 1984 to its current level[7].
California's refined petroleum products market is unique in that the state requires specialized fuel formulations not used elsewhere in the country, creating what energy analysts often refer to as a "fuel island." The state currently maintains a modest buffer between consumption and refining capacity, with daily oil consumption in 2024 averaging approximately 1.4 million barrels per day, compared to a refining capacity of about 1.6 million barrels per day. This represents about a 16% buffer between consumption and production capacity.
Announced Refinery Closures
Two major refineries have announced plans to cease operations by 2026:
Phillips 66 Los Angeles Refinery
Phillips 66 announced in October 2024 that it will close its Wilmington, California refinery (located in the Los Angeles area) by the fourth quarter of 2025. This facility has a processing capacity of 139,000 barrels per day, representing approximately 8.57% of California's total refining capacity. The company cited "evolving market conditions" as the primary driver for this closure decision.
Valero Benicia Refinery
In April 2025, Valero Energy Corporation announced plans to "idle, restructure, or cease operations" at its Benicia refinery near San Francisco by April 2026. More recently, Valero confirmed it would be ceasing operations at this facility. The Benicia refinery has a capacity of 145,000 barrels per day, accounting for approximately 8.94% of the state's current refining capacity. The facility currently employs over 400 workers and produces jet fuel, gasoline, and asphalt[6].
Potential Additional Closures
In addition to these confirmed closures, Valero is also evaluating "strategic alternatives" for its Wilmington refinery in Los Angeles, which has a capacity of approximately 85,000 barrels per day. This represents another potential reduction in the state's refining capability, though no definitive decision has been announced. Once the Phillips 66 and Valero Benicia refineries close, California’s fuel production will meet current fuel consumption with no margin for error or interruption.
Projected Refining Capacity by 2026
Based on the confirmed refinery closures, California's refining capacity will be significantly reduced by April 2026:
Current capacity: ~1.68 million barrels per day
Phillips 66 Los Angeles reduction: -139,000 barrels per day
Valero Benicia reduction: -145,000 barrels per day
Total confirmed reduction: -284,000 barrels per day
This represents a reduction of approximately 17% of California's current refining capacity. If the Valero Wilmington refinery also closes, the total reduction could approach 21% of current capacity.
Starting in 2026, with just the Phillips 66 refinery shut down, California's total refinery capacity will initially drop to approximately 1,483,000 barrels per day against consumption (based on 2024 numbers) of 1,395,000 barrels per day. This will lower the surplus of refinery capacity over demand to just 6.3%, creating a precarious balance between supply and demand.
Causes of Refinery Closures
Several factors have contributed to the decisions to close these refineries:
Regulatory Environment
California has implemented increasingly stringent regulations on refineries. In October 2024, Governor Gavin Newsom signed bill ABX2-1 into law, empowering the California Energy Commission to set minimum petroleum product inventory levels for refineries to address fuel price volatility[14]. This legislation was cited by Valero's CEO Lane Riggs as part of "the most stringent and difficult" regulatory environment in North America[4].
Market Conditions
Phillips 66 specifically cited "evolving market conditions" in its closure announcement. California has experienced declining gasoline demand, with taxable gasoline sales decreasing from 15.6 billion barrels in 2017 to 13.6 billion barrels in 2023. The state's push toward electrification and reduction of fossil fuel consumption has created uncertainty about long-term demand.
Operational Vulnerabilities
California's refineries are particularly vulnerable to operational disruptions. As demonstrated by the February 2025 fire at PBF Energy's Martinez refinery, unexpected incidents can quickly impact the state's tight supply-demand balance. With limited refinery capacity, such disruptions have a disproportionately large impact on supply and prices.
Implications for California's Fuel Supply
The reduction in refining capacity will have several significant implications:
Tighter Supply-Demand Balance
By 2026, California's refining capacity will have a much smaller buffer against consumption. With just the Phillips 66 closure, the buffer shrinks to 6.3%. Following the Valero Benicia closure, this buffer will essentially disappear, potentially creating situations where demand exceeds in-state refining capacity.
Increased Vulnerability to Disruptions
With reduced redundancy in the refining system, any disruption at remaining refineries will have a more significant impact on fuel supply. For instance, if a facility similar in size to the Martinez refinery (139,000 barrels per day) experienced an outage after both planned closures, California would face a refining capacity deficit of approximately 4.9% below consumption levels.
Dependence on External Supply
California may need to increasingly rely on refined fuel imports from outside the state. However, this presents challenges, as there are no pipelines linking California to other refining regions, and few out-of-state refineries are equipped to produce California's specialized fuel formulations. The state may need to rely on refineries located in various global regions, including those on the Gulf Coast, in South Korea, and in China.
Potential Price Impacts
Multiple analyses suggest that significant price increases could result from these refinery closures. A study from USC's Marshall School of Business indicates that gasoline prices could rise by as much as 75% by the end of 2026, potentially reaching $8.44 per gallon. These price increases would reverberate throughout the economy, affecting transportation, food delivery, agriculture, manufacturing, and other sectors.
Sources of California Crude
California’s reliance on imported crude oil, now exceeding 75% of its total supply, has profound implications for its energy security, exposing the state to geopolitical vulnerabilities, price volatility, and supply chain risks. This dependency, coupled with regulatory constraints on domestic production and refining, creates a precarious balance that threatens the stability of its energy ecosystem.
Geopolitical Vulnerabilities
California’s crude oil imports are heavily concentrated in regions with geopolitical instability or shifting trade alliances. As of 2025, Iraq (22.3%), Ecuador (16.9%), Saudi Arabia (16.4%), and Colombia (7%) dominate the state’s foreign oil supply. This concentration leaves California susceptible to disruptions caused by conflicts, sanctions, or diplomatic tensions in these regions. For example, Ecuador’s political instability in 2024 led to temporary export halts, which could directly impact California’s supply chain. Similarly, reliance on Middle Eastern oil exposes the state to OPEC+ production decisions, such as the 2025 output cuts that tightened global markets.
The lack of pipeline connectivity to other U.S. refining hubs exacerbates these risks. California operates as a “fuel island,” reliant on tanker deliveries through the Panama Canal or from Asia. In 2024, congestion at the Canal due to drought-related draft restrictions delayed shipments, highlighting the fragility of this maritime dependency.
Long term trends in California Crude Oil Supplies from https://www.energy.ca.gov/data-reports/energy-almanac/californias-petroleum-market/annual-oil-supply-sources-california
Economic and Price Volatility
California’s reliance on imports translates to significant financial outflows and exposure to global price fluctuations. In 2023, the state spent approximately $27 billion on foreign crude oil imports, based on an average Brent crude price of $84.23 per barrel. These expenditures worsen California’s trade deficit and divert capital from local energy investments.
Price volatility is acute due to California’s unique fuel specifications. The state’s boutique gasoline blend, required under the California Air Resources Board (CARB) regulations, is produced by only a handful of in-state refineries and select foreign facilities. When global crude prices surged by 30% in early 2025, following tensions in the Middle East, California’s gasoline prices spiked to $5.89 per gallon—$1.50 above the national average. Such fluctuations strain households and industries, particularly agriculture and manufacturing, which rely heavily on diesel and jet fuel.
Environmental Trade-Offs
Paradoxically, California’s push for cleaner energy has intensified its reliance on foreign oil, resulting in higher carbon footprints. In-state crude production, which declined to 118 million barrels in 2023 (down 70% since 1980), is subject to stringent environmental regulations, resulting in lower emissions per barrel compared to imports. By contrast, oil from Ecuador and Iraq often originates from fields with lax environmental oversight, increasing the state’s indirect greenhouse gas emissions.
The shift to imports also undermines California’s climate goals. Tankers transporting foreign crude emit approximately 50% more CO₂ per barrel-mile than pipelines or rail, contributing to the state’s carbon footprint despite its progressive policies.
Infrastructure and Refining Constraints
California’s refining capacity, already strained by regulatory pressures, compounds energy security risks. The state’s 1.6 million barrels per day (bpd) refining capacity will drop to 1.48 million bpd by 2026 after the closure of Phillips 66’s Los Angeles refinery and Valero’s Benicia facility. With consumption at 1.4 million bpd, the buffer between supply and demand will shrink to 6.3%, leaving minimal margin for disruptions.
The 2025 fire at PBF Energy’s Martinez refinery demonstrated this vulnerability. The incident temporarily removed 139,000 bpd of capacity, forcing California to import emergency supplies from South Korea and the Gulf Coast at premium prices. Such ad hoc solutions are unsustainable, as few global refineries produce CARB-compliant fuels, and shipping delays can extend to six weeks.
Strategic Recommendations
To mitigate these risks, California must:
Diversify Import Sources: Expand partnerships with stable suppliers like Canada and Mexico, which currently provide only 4.1% and 4.6% of imports, respectively[1].
Revitalize Domestic Production: Streamline permitting for in-state oil extraction under stricter environmental safeguards to reduce reliance on foreign crude[11].
Invest in Storage Infrastructure: Expand strategic petroleum reserves to buffer against supply shocks, as mandated by ABX2-1.
Accelerate Renewable Transition: Scale up renewable energy and electric vehicle adoption to reduce oil dependency, though current EV adoption rates (5% of vehicles) remain insufficient.
Summary
California faces a significant transformation of its refining landscape by 2026. The confirmed closures of the Phillips 66 Los Angeles and Valero Benicia refineries will reduce the state's refining capacity by approximately 17%, with potential for further reductions if additional closures occur. This will create a much tighter balance between supply and demand, increasing vulnerability to disruptions and potentially leading to substantial price increases.
The state's regulatory policies and push toward electrification have created an environment where refiners are reevaluating their long-term presence in California. As this transition continues, California will need to develop strategies to ensure fuel security during the multi-decade transition to alternative energy sources, potentially including increased storage requirements, accept greater reliance on imports or increase domestic oil production or access to domestic crude oil resources, and continued adaptation of regulatory frameworks to balance environmental goals with energy security needs.
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