Refinery takeover and the upcoming supply crisis – Wattwat?

California’s energy policy has been walking on ropes for years, but now the state is considering an extreme measure that can translate it into a mature crisis model: taking over refineries. According to the recent Los Angeles Times Article, California policymakers are seriously considering state ownership of refineries to ensure that gasoline supplies remain stable as private refineries close operations. If it happens, this move could create a cascading of a series of economic and logistical disasters, exacerbating the problems the state claims to solve.

The reality of the closure of the refinery

California's gasoline demand is gradually declining due to more efficient engines and an increasing number of electric vehicles (EVs) on the road. However, demand is still high enough that losing refineries without a reliable alternative strategy can create a serious shortage.

Major refineries including Chevron, Marathon, Phillips 66, PBF Energy and Valero are facing increasing pressure from the state’s aggressive environmental regulations and changing market incentives. Some have transitioned from gasoline production, while others are considering permanent closures.

The Phillips 66 refinery in Wilmington will be closed by the end of this year and can be followed by the refinery. result? While still heavily dependent on fossil fuels, gasoline supply continues to shrink. As Turner Mason & Co. Skip York, chief energy strategist, said:

“Demand will gradually decline, but supply will fall in large chunks”.

This mismatch between supply and demand could lead to fuel shortages, price peaks and logistical nightmares, and the state seems unprepared.

State ownership: Causing disaster

To cope with the looming refinery crisis, the California Energy Commission has put together a range of possible solutions, including:

• Ownership of the National Refinery
• The state purchases or leases the import of gasoline
• Contracts with out-of-state and foreign refineries
• Increase gasoline transportation by train
• Changes California's strict fuel regulations
• Neighbouring countries are encouraged to adopt California-grade fuel standards​

The most extreme option – state ownership – will make California a company in countries such as Venezuela and Iran, where government-run refineries are. We all know how efficient these economies operate.

The Western Petroleum Association has raised concerns about the feasibility of such a move:

“It’s a very complex and difficult business… there are some business barriers and technical barriers that have a comprehensive and holistic understanding of the industry”.

The idea of ​​state bureaucrats (many of whom are starting a war against the oil industry) may suddenly turn around and it is ridiculous to have the ability to manage an oil refinery. Operating a refinery requires expertise, efficiency and adaptability, which is usually not related to government-run businesses.

Why California's energy plan is doomed to fail

California’s regulatory framework has been hostile to the oil industry for years. Recent policies include:

• Banned new gasoline-powered vehicles by 2035
• Potential penalties for refinery profits
• New minimum storage requirements for refineries​

These policies make it increasingly unprofitable to operate refineries in the state. Chevron, a California staple since 1879, has announced plans to move its headquarters to Texas. Chevron executive Andy Walz summarized a question in a statement:

“Recent California policies… have eroded our confidence in the future.”

This should be a wake-up call. However, California seems determined to double down on its bankruptcy rather than reevaluate its approach.

Supply Chain Nightmare

Unlike other states, California is essentially a “gasoline island.” It lacks a multinational logistics network to alleviate supply disruptions. No pipeline brings gasoline from neighboring countries, and the old Jones Act restricts ocean shipments along the Gulf Coast that are rich in ironworks.

Currently, California imports only 8% of its gasoline. The other 92% are perfected in the state. If more refineries are closed, the state will be forced to import more quantities of gasoline, most likely from Asia. This means:

• Higher shipping costs
• Increases vulnerability to global supply chain disruptions
• Potential price fluctuations are related to international markets

However, despite California regulators pushing for the closure of in-state refineries, no one seems to be concerned about the environmental impact of importing gasoline from the entire Pacific region. As Congressional Republican leader James Gallagher pointed out:

“People are shocked by the environmental impact of crude oil transportation, but no one is shocked by the environmental impact of gasoline imports”.

What is the final game?

State Senator Brian Jones speaks out:

“The state has no business to engage in refinery business.”

Here, however, we are discussing the possibility of California taking over one of the world’s most complex industries, all because its policies keep private refineries from profitable.

The obvious solution is to reduce regulatory burdens, allow market forces to work and support energy diversity, rather than forcing a sudden transition to electric vehicles. But California's leadership seems determined to force a fundamental change regardless of the cost.

result? Gasoline prices are expected to be higher, shortages and governments scramble to solve their own manufacturing problems.

California is taking a dangerous path, and if state-owned refineries become a reality, the fuel crisis could get worse and better.

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