Why California could be contending with $5 gas next year

By Chris Isidore, CNN

(CNN) — California could soon be running short of gasoline, potentially hiking some of the highest gas prices in the country.

Refineries in the state have been closing for years with two more set to shutter soon: a Los Angeles-area refinery at the end of the month and a Bay Area one in April. Together, the two refineries provide about 17% of the state’s supply of gasoline.

California drivers already pay 50% more than the rest of the nation, about $4.32 per gallon. These closures could boost prices by another 50 cents, according to Andy Lipow, president of consulting firm Lipow Oil Associates.

“The loss of the refineries are certainly going to result in California having much shorter gasoline supplies,” Lipow said. “The price of gasoline in California will rise on a sustained level, because it’ll have to attract imported gasoline month in and month out.”

The closures also risk widespread shortages if any of the remaining six refineries in California experience unplanned outages caused by fires or other accidents. Those risks are more pronounced if the outages extend for a prolonged period — like the refinery in Martinez, California, which suffered a fire in February and has yet to return to normal capacity.

“When you have 10 refineries and two are down for planned or unplanned maintenance, it’s no big deal,” said Tom Kloza, a veteran oil analyst now working for Gulf Oil. “But when you have only six, and one of them is down — God forbid you have a fire — you’re in trouble. It’s then a market that can easily go to $5 to $6 a gallon.”

Only Hawaii, which gets most of its gasoline delivered by ship, has a higher average price for gas than California.

California has the highest gas tax in the country at nearly 71 cents, more than twice the national average, according to the American Petroleum Institute. There’s also the state’s carbon tax, which is paid by gasoline retailers and distributors but passed along to drivers at the pump. According to OPIS, which tracks gasoline price data for AAA, the carbon tax can add another 20 to 25 cents to a gallon of gas.

“California is not like the United States. They’re serious about suppressing carbon,” said Kloza.

Kloza expects the national average to fall to $2.75 per gallon, while California’s prices will either remain near its current 2025 average of $4.64 or climb higher.

“Where rest of the country will probably see lower prices in 2026 than 2025, I wouldn’t bet that’ll be the case for California,” he said.

A ‘challenged asset’

Phillips 66, which operates the Los Angeles refinery, said the closure was a business decision given the cost of operating in California. CEO Mark Lasiher called the LA refinery a “challenged asset” at the start of the year.

The company said it will still find ways to supply California to meet demand, including imports.

Valero, which operates the Bay Area refinery, said in a filing that it was closing the refinery in April due to the costs and uncertainty imposed on the company by California state regulations.

California state officials told CNN they’re confident there won’t be any shortages. They cite the shuttered Martinez refinery, which is set to come back online early in 2026 and is a similar size to the Valero refinery that’s closing.

Even with strict regulations on the blend of gasoline that can be sold in the state, California officials said other sources of gas and changes in the market will allow California to get by with fewer refineries.

“As California refining capacity decreases over time, the state will import less crude and more refined oil products, which refiners around the world now produce to meet cleaner burning fuel standards in California and elsewhere,” the California Energy Commission, which oversees gasoline supplies in the state, told CNN in a statement. “Overall demand for oil will decline as the transportation sector shifts to electricity and other clean, alternative fuels.”

EV sales trimming gas demand

Only about 6% of the cars on California roads are pure EV or plug-in hybrids, according to California Energy Commission. The majority of California drivers will need to keep filling up with gas for decades to come.

Still, California boasts the highest percentage of new car sales that are electric vehicles in the US, according to Cox Automotive. EVs accounted for nearly a quarter of sales in the state during the first nine months of the year, juiced by the end of a $7,500 federal EV tax credit in October.

But California’s plans to essentially ban new gasoline powered vehicles by 2035 is one reason refinery operators have been pulling out of California for years, even if that ban now faces challenges from the federal government. Companies also blame tougher environmental rules on their operations, the carbon tax and the costly upgrades needed to continue operations.

“These companies are making business decisions (based on conditions) years down the road and decided that California is a difficult place to do business,” said Jodie Muller, CEO of the Western States Petroleum Association, an industry trade group.

With the continued refinery closures, she said, “the system really gets weaker, prices climb and there could be disruptions down the road.”

The-CNN-Wire
™ & © 2025 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.