Oil Refinery Takeovers and the Coming Supply Crisis – Watts Up With That?

California’s energy policies have been walking a tightrope for years, but now, the state is contemplating an extreme measure that could tip it into full-blown crisis mode: taking over oil refineries. According to a recent Los Angeles Times article, California policymakers are seriously considering state ownership of refineries to ensure gasoline supply remains stable as private refiners shut down operations​. This move—if it happens—could create a cascade of economic and logistical disasters, exacerbating the very problems the state claims to be solving.

The Reality of Refinery Closures

California’s gasoline demand has been in gradual decline 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 replacement strategy could create severe shortages​.

Major refiners—including Chevron, Marathon, Phillips 66, PBF Energy, and Valero—are facing mounting pressures from the state’s aggressive environmental regulations and shifting market incentives. Some have already transitioned away from gasoline production, while others are contemplating permanent shutdowns.

The Phillips 66 refinery in Wilmington is set to close by the end of the year, and more refineries could follow. The result? A shrinking gasoline supply in a state that still heavily relies on fossil fuels. As Skip York, chief energy strategist at Turner Mason & Co., put it:

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

This mismatch between supply and demand could lead to fuel shortages, price spikes, and logistical nightmares—none of which the state seems prepared for.

State Ownership: A Disaster in the Making

In response to the looming refinery crisis, the California Energy Commission has put together a list of possible solutions, including:

• State ownership of oil refineries
• State purchase or lease of ships for gasoline imports
• Contracts with out-of-state and foreign refineries
• Increased gasoline shipments via train
• Changes to California’s strict fuel regulations
• Encouraging neighboring states to adopt California-grade fuel standards​

The most extreme option—state ownership—would put California in the company of countries like Venezuela and Iran, where government-run refineries are the norm. And we all know how efficiently those economies function.

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

“This is a very complex and hard business to run… There are commercial barriers and technical barriers that take a comprehensive and holistic understanding of the industry”​.

The idea that state bureaucrats—many of whom have spent years waging war against the oil industry—could suddenly turn around and competently manage a refinery is laughable. Running a refinery requires expertise, efficiency, and adaptability—qualities not typically associated with government-run enterprises.

Why California’s Energy Plans Are Doomed to Fail

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

• Banning the sale of new gasoline-powered vehicles by 2035
• Potential penalties on refinery profits
• New minimum storage requirements for refiners​

These policies are making it increasingly unprofitable to operate refineries in the state. Chevron, a California staple since 1879, has already announced plans to move its headquarters to Texas. In a statement, Chevron executive Andy Walz summed up the problem:

“Recent California policies… erode our confidence going forward”​.

This should be a wake-up call. But instead of reassessing its approach, California seems determined to double down.

The Supply Chain Nightmare

Unlike other states, California is essentially a “gasoline island.” It lacks a multi-state logistics network to mitigate supply disruptions. There are no pipelines bringing gasoline in from neighboring states, and the antiquated Jones Act restricts ocean shipments from the refinery-rich Gulf Coast.

Right now, California imports only 8% of its gasoline; the other 92% is refined within the state​. If more refineries shut down, the state will be forced to import significantly larger quantities of gasoline—most likely from Asia. That means:

• Higher transportation costs
• Increased vulnerability to global supply chain disruptions
• Potential price volatility tied to international markets

And yet, while California regulators push for the closure of in-state refineries, no one seems concerned about the environmental impact of importing gasoline from across the Pacific. As Assembly Republican Leader James Gallagher pointed out:

“People freak out about the environmental impacts of crude oil shipments, but no one’s freaking out about the environmental impacts of gasoline imports”​.

What’s the Endgame?

State Senator Brian Jones put it bluntly:

“The state has no business being in the oil refinery business”​.

Yet here we are, discussing the possibility of California taking over one of the most complex industries in the world—all because its policies have made it impossible for private refiners to operate profitably.

The obvious solution would be to ease regulatory burdens, allow market forces to work, and support energy diversity rather than forcing an abrupt transition to EVs. But California’s leadership seems determined to force a radical transformation, regardless of the cost.

The result? Expect higher gas prices, more shortages, and a government scrambling to fix problems of its own making.

California is walking a dangerous road, and if state-owned refineries become reality, the fuel crisis could get far worse before it gets better.