California’s Refining Retreat: Navigating the 20% Capacity Cliff

The closure of Phillips 66’s Los Angeles refinery on December 31, 2025, marks a watershed moment in California’s century-long relationship with the oil industry. Spanning 659 acres across Carson and Wilmington, the facility was a cornerstone of Southern California’s energy infrastructure. Its decommissioning is not an isolated event but rather the most visible sign of a systemic retreat by major oil companies from a state that has become increasingly hostile to fossil fuel production and refining. With Marathon’s Martinez refinery idling and Valero’s Benicia facility anticipated to follow suit, California is on the verge of losing nearly 20% of its total refining capacity.

This contraction is the result of a pincer movement between declining local crude production and a tightening regulatory environment. While California remains the third-largest state by refining capacity, its crude oil production has slipped to seventh nationally as of 2024, trailing behind Texas, North Dakota, Alaska, New Mexico, and Wyoming. This mismatch forces refineries to rely more heavily on imported crude, increasing costs and logistical complexity. Simultaneously, Governor Gavin Newsom’s administration has aggressively pursued environmental reforms aimed at phasing out internal combustion engines and reducing carbon emissions, creating a regulatory climate that industry advocates argue makes long-term investment in traditional refining untenable.

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With Marathon’s Martinez refinery idling and Valero’s Benicia facility anticipated to follow suit, California is on the verge of losing nearly 20% of its total refining capacity.

The immediate market impact of these closures is a heightened vulnerability in California’s isolated fuel market. Because the state requires a unique, low-emission gasoline blend and lacks significant pipeline connections to the rest of the U.S. refining hub in the Gulf Coast, any reduction in local capacity directly translates to tighter supply and higher price volatility at the pump. The loss of 139,000 barrels of crude processing and 85,000 barrels of gasoline production per day from the Phillips 66 facility alone creates a supply gap that must be filled by imports, further decoupling California’s energy security from domestic production.