RESOLVING THE CONTRADICTION BETWEEN GAS PRICES AND REFINERY CLOSURES

 

CALIFORNIA FOCUS
FOR RELEASE: FRIDAY, JULY 4, 2025 OR THEREAFTER

BY THOMAS D. ELIAS
“RESOLVING THE CONTRADICTION BETWEEN GAS PRICES AND REFINERY CLOSURES”

 

It’s an apparent contradiction: on one hand, state regulators reported in May that California gasoline pump prices since 2015 average 41 cents per gallon higher than in other states, after accounting for taxes, fees and environmental costs.

 

On the other hand, two of California’s large refineries now plan to close soon, one by the end of this year and the other within the first half of 2026. They say they can’t afford to stay open, even though together they make 17 percent of the state’s gasoline.

 

How can gasoline refiners be making the highest profits in the lower 48 states, but still not enough to keep their plants open?

 

To understand this, it’s important to know the average net profit for oil companies varies, with the biggest refiners – the ones supplying branded stations like Chevron and Shell – making more money because of their retail marketing networks, while smaller refiners often supply lower-priced independent brands that pay (and charge) less.

 

State regulation of gas refining is a pretty new thing, dating from a 2023 law signed by Gov. Gavin Newsom that allows a wing of the state Energy Commission to order that refiners keep higher stocks on hand than previously at times when they’ve recently been caught at price gouging. One such time came in February 2022, when pump prices jumped more than $2.50 per gallon within two days of an outage at one refinery near Los Angeles.

 

When Newsom signed the law allowing this kind of regulation, he accused oil companies of “gouging” and “screwing Californians.”

 

In fact, the state reported this spring that per-gallon excess profits by the oil companies peaked at $2.36 during a fall 2022 price spike.

 

There have been no similar-sized spikes since the new law took effect.

 

So how to explain the scheduled closures of a Phillips 66 refinery near Los Angeles and a Valero plant in Benicia?

 

Even with these refineries charging prices and posting profits consistently well above national averages – but without sudden windfall profits due to occasional outages for maintenance and mechanical problems – that’s what they plan.

 

Says one expert, “The two refineries are closing because they are old and expensive to run and the state’s planned transition to electric vehicles promised a drop in demand.”

 

Also, these refineries serve more unbranded gas stations than the biggest-in-California Marathon refinery near Los Angeles and the two big Chevron facilities at Richmond and El Segundo. So they make less profit than their competitors that supply large networks of branded stations. Maybe they needed to gouge customers once in awhile just to stay open.

 

Pollution also plays a role. Valero Benicia last October was forced to pay an $82 million fine. The state Air Resources Board and the Bay Area Air Quality Management District (BAAQMD) imposed the penalty for violations involving unreported emissions of harmful organic compounds, including benzene. An investigation showed the violations had been occurring for about 20 years.

 

To fix up both the refineries aiming to shut down would cost in the hundreds of millions of dollars, an amount they believed they were unlikely to make up soon in the new no-price-spikes era. This situation is not unique: Several refineries in Texas are also closing in response to competition from new foreign “super refineries,” mostly in the Middle East.

 

The closing California plants will likely replace their production with gasoline shipped in from those and other foreign sources, including Indonesia. Chances are, there will be no major shortages, but there may be price increases, which could provide drivers with new reasons to buy EVs.

 

Of course, now that President Trump has eliminated federal EV price incentives and tax refunds, one or both of the outfits that have resolved to shut down may reconsider, as their potential economic futures look better than they did a few months ago.

 

Meanwhile, the remaining large refineries, which may soon be producing as much as 98 percent of California fuel, have no reason to stage a similar shutdown, which promises a long period of stability in this industry after the inevitable adjustment period that would accompany the two scheduled closures.

 

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    Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough, The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net