California’s Looming Fuel Crisis: Refiners Are Trying to Warn the State

Charles Rotter

California is steadily dismantling the fuel infrastructure that keeps its economy running. At the same time, demand for that fuel remains enormous. That mismatch is now reaching a point where the companies actually producing the fuel are beginning to issue increasingly blunt warnings.

The message is simple: if current policy continues, more refineries will close. When refineries close, gasoline does not disappear. It simply comes from somewhere else—usually farther away, at higher cost, and often from facilities operating under looser environmental standards.

The warnings are arriving while California is already losing refining capacity.

And the losses are not small.

Phillips 66 shut down its Los Angeles refinery in late 2025. The facility processed roughly 140,000 barrels of crude oil per day. Another major refinery is preparing to follow. Valero has announced plans to idle its Benicia refinery by April 2026, removing another 145,000 barrels per day from California’s fuel system.

Taken together, those two closures eliminate nearly 300,000 barrels per day of refining capacity. In practical terms, that is close to one-fifth of the state’s total capacity disappearing within a short period.

This is not a trivial adjustment in a market that is already unusually fragile.

California’s fuel system operates almost like an island. The state requires a specialized gasoline blend that few refineries outside the region produce. It also lacks major pipeline connections to the large refining centers in Texas or the Midwest. When a California refinery shuts down, replacement fuel must often arrive by ship from overseas.

That system works when everything is stable. It becomes far less comfortable when supply begins to shrink.

Petroleum refiners appear to understand this risk. Several companies are now warning California officials that additional regulatory pressure could accelerate the trend.

In a recent letter to Governor Gavin Newsom and state regulators, Marathon Petroleum outlined the problem in direct terms. The letter concerns proposed amendments to California’s Cap-and-Invest program administered by the California Air Resources Board.

According to Marathon, the proposal would dramatically increase the cost of operating refineries inside the state.

“California refineries are already among the most expensive refineries to operate in the world,” the company wrote. “As written, CARB’s proposal would further widen the cost disparity, forcing refineries to reconsider whether operations in California remain viable.”

That sentence should attract attention because refinery closures are already occurring without the additional policy changes.

Marathon also emphasized the scale of economic activity tied to refining operations.

“Petroleum refineries are vital to California’s economy supporting high-quality union and non-union jobs. Marathon alone employs over 2,000 workers in California and contracted approximately 5,300 full-time-equivalent contractors across 2024 and 2025.”

Refineries are not just fuel producers. They are large industrial hubs supporting maintenance contractors, equipment suppliers, transportation networks, and surrounding communities.

The company also pointed out the role refineries play in the state’s broader economy.

“Refineries pay state and local taxes that fund essential public services and ensure a reliable supply of transportation fuel to California consumers and businesses. This fuel keeps goods moving through complex supply chains across agriculture, manufacturing, logistics, and consumer markets.”

That last point often disappears in climate policy discussions. Modern supply chains rely heavily on transportation fuels. Trucks, ships, trains, aircraft, farm equipment, and construction machinery all depend on petroleum products.

California’s economy has not suddenly stopped needing those fuels.

In fact, demand remains substantial. Roughly ninety percent of vehicles registered in the state still run on gasoline.

This is where the policy problem becomes visible.

If California reduces its refining capacity while demand remains high, the state becomes more dependent on imported fuel. That introduces price volatility and supply risk.

Marathon summarized the consequences of the proposed regulatory changes in a short list.

“If CARB finalizes these proposed amendments as written, they will impose costs on in-state refineries so significant they risk higher transportation fuel prices for California residents, loss of high-quality jobs, declines in state and local tax revenues, increased dependence on imports, reducing security of gasoline, diesel, and jet fuel supply, and compromised military fuel availability and national security.”

That final item deserves particular attention.

California refineries produce large quantities of jet fuel and diesel used by the United States military. Numerous naval and aviation installations operate along the West Coast, and those operations require dependable fuel supply chains.

Marathon explained the concern clearly.

“California refineries supply significant volumes of fuel to the U.S. military supporting operations along the West Coast and at major defense installations.”

If domestic production declines further, the military will increasingly rely on imported fuel shipments.

“In such a scenario, the military will be forced to rely on more imported jet and diesel fuel creating unpredictable supply conditions during emergencies or heightened geopolitical risk.”

Energy supply has always been a strategic consideration during periods of conflict. Domestic refining capacity historically served as a buffer against disruptions in international fuel markets.

Reducing that capacity introduces uncertainty into systems that traditionally avoided uncertainty whenever possible.

Marathon’s letter also highlights an irony embedded in many climate policies.

California’s refineries operate under some of the strictest environmental regulations in the world. If those facilities close, fuel production does not disappear. It shifts to other refineries operating under different regulatory frameworks.

“This will simply lead to imported fuel produced by refineries in other states and countries with less stringent regulations and lower regulatory costs,” the company wrote. “The net effect will be an increase in global greenhouse gas emissions.”

Economists often describe this process as carbon leakage. Industrial activity relocates to jurisdictions with lower regulatory costs while global emissions remain largely unchanged.

Sometimes they increase.

Meanwhile the jurisdiction that implemented the regulation loses the industry.

The warnings are not limited to Marathon.

Chevron executives have also begun sounding alarms about California’s regulatory environment. In a recent interview, Chevron vice president Andy Walz described the situation in unusually blunt terms.

“I know Chevron and my competitors are having trouble running a business in the state of California,” Walz said. “If they add this burden of a tax on our refineries, I think it’s a matter of time. It’s not whether or not they’ll close, it’s when.”

Statements like that are easy to dismiss as industry lobbying. But when refinery closures are already occurring, the warnings start to look less theoretical.

California once had around forty refineries. Today the number is roughly a dozen.

Each closure makes the remaining system tighter. Each tightening makes supply disruptions more likely.

The companies operating those refineries appear to be trying to communicate this reality before additional capacity disappears.

Whether policymakers choose to treat those warnings as useful information or inconvenient noise will shape California’s energy future.

The fuel system the state currently relies on was built over many decades. It cannot be replaced quickly, and it cannot function without the infrastructure that produces the fuel.

Ignoring that constraint will not eliminate it.

It will simply make the consequences arrive sooner.