California might soon face a gasoline shortage, which could lead to a rise in some of the nation’s highest fuel prices.
Refineries in the state have been closing for several years, and two more will shutter shortly: a Los Angeles area plant at the end of the month and a Bay Area facility in April. Combined, both refineries supply about 17% of the state’s gasoline reserves.
California drivers already pay 50% more than the rest of the country—roughly $4.32 per gallon. These shutdowns could boost prices by another 50 cents, according to Andy Lipow, president of the consulting firm Lipow Oil Associates.
“The loss of refineries will certainly result in California having substantially fewer gasoline stocks,” Lipow stated. “Gasoline prices in California will increase at a steady rate because it will need to draw in imported fuel month after month.”
The closures could also trigger a massive shortfall if unforeseen outages, caused by fires or other incidents, occur at the remaining six California refineries. These risks become even more pronounced if the disruptions are prolonged—for example, at the Martinez, California refinery, which suffered a fire in February and has not yet returned to full capacity.
“When you have 10 refineries, and two are down for planned or unplanned maintenance, it’s not an issue,” said Tom Kloza, a veteran oil analyst now with Gulf Oil. “But when you only have six, and one of them drops—heaven forbid you have a fire—you have problems. Then the market can easily jump to $5–$6 per gallon.”
California has the nation’s highest gasoline tax—nearly 71 cents, more than double the national average, according to the American Petroleum Institute. There is also a state carbon tax paid by gasoline retailers and distributors but passed on to drivers at the pump. The carbon tax could add another 20–25 cents to a gallon of gas, according to OPIS, which tracks fuel price data for AAA.
“California is not the United States. They are serious about carbon suppression,” Kloza noted.
Kloza anticipates the national average price will decrease to $2.75 per gallon, while California prices will either stay near the current 2025 average of $4.64 or climb higher.
“Where the rest of the country is likely to see lower prices in 2026 than in 2025, I wouldn’t bet that will be the case for California,” he remarked.
“Contested Asset”
Phillips 66, which operates the Los Angeles refinery, said the closure was a business decision given the expense of operating in California. CEO Mark Lashier referred to the LA refinery as a “contested asset” earlier in the year.
The company stated it will still seek ways to supply California to meet demand, including imports.
Valero, which runs the Bay Area refinery, reported in a filing that it is shutting down the facility in April due to costs and uncertainty imposed on the company by California state regulations.
Even with strict limitations on the gasoline blends that can be sold in the state, California authorities maintain that other fuel sources and market shifts will allow the state to manage with fewer refineries.
“As California’s refining capacity declines over time, the state will import less crude oil and more refined products, which are now being made globally by refineries to meet cleaner fuel standards in California and elsewhere,” the California Energy Commission, which oversees the state’s gasoline supply, told CNN. “Overall oil demand will taper off as the transportation sector transitions to electricity and other clean alternative fuels.”
EV Sales Lower Gasoline Demand
Only about 6% of vehicles on California roads are purely electric or plug-in hybrids, according to the California Energy Commission. Most California drivers will need to continuously fuel up with gasoline for decades more.
Nevertheless, California boasts the highest percentage of new vehicle sales that are electric cars in the U.S., according to Cox Automotive. EVs accounted for nearly a quarter of sales in the state during the first nine months of the year, boosted toward the end by the federal $7,500 tax credit in October.
“These companies are making business decisions [based on conditions] years out and have decided that California is a difficult place to operate,” said Jodie Mullaly, CEO of the Western States Petroleum Association, an industry trade group.
With ongoing refinery closures, she said, “the system is truly weakening, prices are going up, and there could be disruptions in the future.”
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