Phillips 66 announced Wednesday it was shutting down its Los Angeles-area refinery in the last quarter of next year. The news comes two days after California Gov. Gavin Newsom signed a controversial law that requires refineries to maintain a certain amount of product so that when supplies are low, California residents don’t get hit with price spikes at the pump. But experts say that maintaining a reserve may not depress prices.

The industry has been warning the law would have the opposite effect. Catherine Reheis-Boyd, CEO of Western States Petroleum Association (WSPA), an industry group, warned in August that the refinery supply mandate would create artificial shortages by forcing refiners to withhold fuels from the market. 

Arizona Gov. Kathie Hobbs, a Democrat, and Nevada Gov. Joe Lombardo, a Republican, wrote a letter to Newsom in September, warning that the refinery regulations would drive up costs for consumers, contradicting Newsom’s narrative that his regulations would bring costs down. 

“With both of our states reliant on California pipelines for significant amounts of our fuel, these looming cost increases and supply shortages are of tremendous concern to Arizona and Nevada,” the governors said in their letter. 

War on oil industry

Phillips 66 claims that the decision to close the refinery was unrelated to the new law, and it will continue to operate in the state. 

“We want to continue to be a trusted and deliberate partner with the state. This announcement is based on consideration of multiple factors, including future options for the site as part of Phillips 66’s ongoing review of its portfolio of assets,” the company said in a statement. 

Experts tell Just the News that despite what the company claims, the company is responding to a hostile regulatory environment that California lawmakers and Newsom have created. “They've essentially declared war against their oil industry, and they treat the oil industry out there as a terrible thing in the state,” Robert Rapier, a chemical engineer and editor in chief of Shale Magazine, told Just the News.

Steve Milloy, a senior legal fellow with the Energy and Environmental Legal Institute and publisher of “JunkScience.com,” said Phillips 66’s decision follows that of Chevron, which announced in August it was moving its headquarters to Texas, and it represents a shift in how oil companies are dealing with regulations aimed at harming them. 

“California is hostile to oil, and now the oil industry is — and it's sort of a new phenomenon — the oil industry is standing up for themselves,” Milloy said. 

Rapier said that in the early 1900's, California became the largest producer of oil in the U.S. As more and more burdensome regulations fell upon the industry in the past few decades, it’s fallen to seventh place. This is at a time when oil production has reached record highs as a result of the “Shale Revolution,” which passed California over entirely, Rapier said. The state also has more proven oil reserves than any other state. 

This has also created a national security issue, Rapier said, because the state has to import so much of its crude from foreign countries. Last year, the state’s refineries imported more than 60% of their oil from foreign countries for the first time, and most of that comes from Iraq.  Five House Republicans have initiated an investigation into the possibility that officials in Iraq are helping Iran skirt U.S. sanctions, and some of the profits may be ending up with terrorist groups. 

Gasoline island

California’s laws governing refineries require blends in gasoline that aren’t used anywhere else, which Rapier said makes the state a “gasoline island.” 

“It means that when there's a supply interruption, refiners from neighboring states can't send their gasoline into California to alleviate any supply crunches, and that's really the problem they've caused,” he said. 

The law takes effect next year, and it grants the California Energy Commission the authority to determine how much storage each refiner must have on hand for each type of fuel and each blending requirement. The agency can adjust the requirements and determine when refiners can tap the reserves or add to them. 

Newsom proposed the regulations in August, arguing that the price spikes at California’s gas stations have nothing to do with California’s regulations, but rather they’re due to the greed of oil companies. The governor claimed that if the law had been in effect in 2023, Californians would have saved as much as $650 million at the pump. 

“Price spikes at the pump are profit spikes for Big Oil. Refiners should be required to plan ahead and backfill supplies to keep prices stable, instead of playing games to earn even more profits,” Newsom said in a statement announcing the proposal. 

Data from AAA on Wednesday, show California as having the highest gas prices in the country, slightly higher than Hawaii. According to a study by the Energy Policy Research Foundation, all of California’s gasoline regulations add as much as $1 per gallon of gasoline on average during 2022 and 2023, and $0.90 per gallon this year. On Oct. 3, 2022, the regulations added $1.91 per gallon. 

Dwindling number of refineries

According to the U.S. Energy Information Administration, California had 43 operating refineries in 1982. That’s dwindled down to 14 this year. One of those is Phillips 66’s Rodeo San Francisco Refinery in San Francisco, but it produces renewable diesel and sustainable aviation fuel. 

“The Rodeo Renewable Energy Complex is on track to increase production rates to more than 800 million gallons per year (50,000 BPD) of renewable fuels by the end of the second quarter, positioning Phillips 66 as a leader in renewable fuels,” the company stated in an April press release announcing the refinery’s conversion. 

Phillips’ decision to shut down one of the 14 refineries will exacerbate an issue the state has been foreseeing in which it no longer has enough refineries to supply its unique fuel blends. The California Energy Commission even proposed in August that the state should purchase and operate its remaining refineries. 

In Wednesday’s announcement, Phillips 66 said that besides the Rodeo Renewable Energy Complex, the company would also operate midstream assets, which are activities between production of the raw product and the processing and distribution activities. Approximately 600 employees and 300 contractors currently operate at the Los Angeles-area refinery, according to the company’s announcement. 

“We understand this decision has an impact on our employees, contractors and the broader community. “We will work to help and support them through this transition,” Mark Lashier, chairman and CEO of Phillips 66, said. 

Rapier said that the company’s decision would not be the last, and California should prepare for other oil companies to shut down more facilities or leave the state entirely. 

"You've painted us as an enemy. You've got people hating us, and now you're passing very punitive legislation against us. And so, yeah, we're out of here. We're not going to do business here anymore. Those sorts of things have consequences,” Rapier said.