California’s refining industry is confronting significant challenges due to evolving regulatory landscapes and market dynamics. The state’s commitment to environmental sustainability has led to the implementation of stringent regulations, impacting refinery operations.

On October 14, 2024, Governor Gavin Newsom signed Assembly Bill X2-1 (ABX2-1) into law, empowering the California Energy Commission (CEC) to regulate refinery transportation-fuel inventories. Effective January 14, 2025, this law requires refineries to maintain minimum inventory levels of state-compliant refined transportation fuels. Non-compliance could result in penalties of up to $1,000,000 per day after a three-day notice period.

Shortly after the enactment of ABX2-1, Valero Energy Corp announced a $1.1 billion pre-tax impairment related to its California refineries and plans to shut down or restructure its Benicia refinery by April 2026. The decision reflects increasing regulatory and cost pressures in California, driven by the state’s emissions goals and proposed refinery transparency laws.

Similarly, Phillips 66 has announced plans to close its Los Angeles-area refinery by the end of 2025, citing market dynamics. This closure follows the conversion of their Rodeo refinery near San Francisco into a renewable diesel production facility.

These developments indicate a trend towards reduced refining capacity in California, raising concerns about energy supply stability and economic impacts on local communities. The state’s fuel market, already facing high gasoline prices, may encounter further supply issues as refining margins remain weak.

Refineries must navigate these challenges by exploring sustainable practices and potential transitions to renewable energy sources. Adapting to California’s regulatory environment requires strategic planning and investment to ensure continued contribution to the state’s energy needs while meeting environmental standards.​

In summary, California’s refining sector is at a crossroads, balancing the demands of environmental regulations with the need for operational viability. Refineries that proactively embrace change and innovation will be better equipped to navigate the evolving landscape.