California drivers have felt the sting of the U.S.-Iran conflict at the pump, with gas prices spiking sharply and costing residents billions of dollars in additional fuel expenses in recent months. But the war overseas is only part of the story behind what motorists in the Inland Empire and across the state are paying at the pump.
Two major refineries — Phillips 66 and Valero’s Benicia facility — have shut down in recent months, cutting the state’s refining capacity by roughly 17% and leaving just six major refineries to supply California’s entire market for gasoline and diesel.
That matters more here than almost anywhere else in the country. California requires a specially formulated fuel blend designed to cut air pollution and prevent the kind of smog that once choked Los Angeles and much of the Inland Empire. Because so few refineries outside the state make this blend, and because no pipelines carry outside gasoline into California, the state functions almost like an energy island. When supply tightens, prices have nowhere to go but up.
With fewer refineries competing for business, the ones still operating have had more room to raise their margins. State data show refinery profit margins ran about 50% higher in the two months following the outbreak of the Iran conflict than they had over the prior year. Refining companies have also been earning more on the retail side — branded gasoline, sold through stations tied directly to refiners, now costs about 30 cents more per gallon than unbranded fuel.
Refinery operators argue that California’s environmental regulations, higher taxes and its cap-and-invest carbon market are driving up costs and pushing them toward the exits. They’ve asked the state for more financial support to keep running. In May, the California Air Resources Board responded by approving close to $2 billion in free pollution allowances for refineries, intended to encourage them to reduce emissions rather than shut down.
Yet even with that assistance, there’s no real assurance those refineries will stay open for the long haul. Most are more than a century old, and demand for their primary product — gasoline — is already sliding as more Californians switch to electric vehicles. Roughly one in four new cars sold in the state today is an EV, and that share is expected to keep climbing.
Given these realities, some experts argue California should stop trying to prop up aging refineries and instead prepare for their eventual closure. That means making sure fuel remains affordable for the drivers who still rely on gasoline — particularly lower-income households — by expanding marine fuel imports and building more storage capacity to guard against sudden price swings.
Another option under discussion is a new pipeline that could import petroleum products from out of state. One such project has already been proposed, which would link Texas to Arizona and reverse the flow of an existing pipeline that currently sends California-refined fuel eastward. More competition from imported fuel could help keep local refining margins in check and cushion the state from further refinery shutdowns.
As California moves through this transition, officials say it’s essential to protect refinery workers who lose their jobs and the communities that depend on refinery tax revenue. Lawmakers are also pushing for greater transparency from refining companies about the environmental cleanup costs tied to shuttering old facilities, so that communities already burdened by decades of industrial pollution aren’t left to deal with contaminated sites once the refineries are gone.
Nobody is suggesting California abandon its refining industry immediately — these facilities still supply fuel that millions of residents depend on daily. But as the state moves toward a cleaner energy future, some refinery closures appear unavoidable. The challenge now is managing that shift in a way that keeps fuel affordable, protects public health, and supports the workers and communities caught in the middle.
Original source: CalMatters
