R. NEMEC, Contributing Editor

In early 2026, California policymakers were updating long-term forecasts for oil, natural gas and transportation fuel demand while preparing a revised Transportation Fuels Transition Plan. The plan, expected to be released this year, examines how the state can maintain an affordable, reliable and equitable fuel supply while continuing to pursue its climate objectives.

Those discussions have taken on greater urgency following the announcement of two major refinery closures in 2025, eliminating more than 20% of California's refining capacity. The closures prompted Gov. Gavin Newsom and state officials to reconsider policies affecting an industry that still supports tens of thousands of jobs.

California's refining sector has steadily contracted during the past four decades, falling from approximately 40 refineries in the 1980s to 20 by 2000 and just 12 facilities by 2025 before the latest closure announcements.

Chevron Downstream, Midstream & Chemicals President Andy Walz said state policies had effectively made California "un-investable" for refiners, warning that additional closures were inevitable without policy changes. At the same time, California continues to target the elimination of in-state oil production by 2045, despite projections showing demand could remain as high as 400,000 barrels per day (bpd) beyond that date.

By contrast, the California Air Resources Board's (CARB) revised Scoping Plan projects petroleum demand could decline by 94% and overall fossil fuel consumption by 86% from 2022 levels by 2045.

"Successfully achieving the plan's outcomes would reduce demand for liquid petroleum by 94% and total fossil fuels by 86% in 2045, relative to 2022," said Lindsay Buckley, communications director for CARB.

Walz believes state officials underestimated the challenges facing refiners.

"I don't think they believed the industry was in trouble," Walz said. "I think they misread what was really going on, and it took some real action by some competitors to wake them up."

He acknowledged Newsom's proposal to encourage additional in-state oil production as recognition that California faces a supply challenge, although Chevron continues to oppose efforts to preserve other regulations that increase operating costs for refiners and marine transportation.

Industry observers describe the governor's recent actions as a temporary pause in California's aggressive fossil fuel transition, recognizing that petroleum demand is declining more slowly than many policymakers anticipated.

California Resources Corp. (CRC) President and CEO Francisco Leon argues the state must strike a better balance between climate ambitions and maintaining existing energy infrastructure.

"When it comes to energy, California needs to do better in balancing today's needs with tomorrow's goals," Leon said. "And that includes protecting the state's oil production and refining infrastructure."

Production Continues to Decline

Most industry analysts agree California's existing oil and gas resource base will continue declining throughout the coming decades unless new economically viable reserves are discovered.

Current petroleum consumption averages roughly 800,000 bpd, down from nearly 1 MMbpd a decade ago.

According to Skip York, chief energy strategist at Turner Mason & Co., demand continues to decline, but at a much slower pace than previously expected.

California now produces only about 23% of the oil it consumes. Foreign imports—primarily from the Middle East—account for roughly 61% of statewide consumption, while Alaskan production has declined sharply over the past several decades. Historically, California and Alaska once supplied nearly all of the state's petroleum needs.

Regulatory Pressures Continue

Industry groups remain concerned that additional legislation could further discourage investment.

Jim Stanley, communications director for the Western States Petroleum Association (WSPA), pointed to Senate Bill 982, which would expand the state's ability to recover environmental damages from oil and gas companies.

"That really could send a strong message to the industry that investment is not welcome in California," Stanley said.

Stanley believes fossil fuels will remain an important part of California's energy mix well beyond 2045.

"There is definitely an appetite for oil and natural gas here; it is just a matter of being able to get the permits and meet all of the environmental regulations," he said.

According to WSPA, California's oil and gas industry supported approximately 144,000 jobs in 2022, with employment projected to increase modestly during the next several years.

Refinery Closures Reshape Policy

The announced closures of Phillips 66's Wilmington refinery and Valero's Benicia refinery removed between 18% and 22% of California's refining capacity.

Following those announcements, the California Energy Commission (CEC) began consulting industry representatives, labor organizations, environmental groups and local governments to evaluate options for maintaining reliable fuel supplies while advancing state climate policies.

CEC officials argue renewable energy projects can generally be built more quickly and at lower cost than conventional generation.

Meanwhile, Newsom signed Senate Bill 237, intended to encourage additional oil production in Kern County while maintaining environmental safeguards established under earlier legislation.

The state has also introduced proposals designed to improve refinery economics after recognizing the consequences of continued capacity losses.

Kern County Emerges as a Focus

One major component of California's revised approach is renewed support for drilling in Kern County, which produces approximately 70% of the state's oil.

However, questions remain about whether additional drilling is economically attractive.

"The real question is what are the economics of new drilling in Kern County," York said.

California Independent Petroleum Association (CIPA) President Rock Zierman noted that new drilling permits have not yet increased significantly despite recent policy changes.

"New drilling permits have not come flying out of Kern so far," Zierman said.

He hopes Kern County eventually could support roughly 2,000 new wells annually but acknowledges continued uncertainty surrounding California's refining sector.

Carbon Capture Gains Momentum

While some companies continue reducing their California operations, CRC is pursuing carbon capture and storage (CCS) development as part of the state's broader decarbonization strategy.

Leon highlighted CRC's Elk Hills natural gas plant as the state's first CCS project and expects additional projects throughout California's Central Valley.

"While some companies are giving up on California, we're looking to partner with Governor Newsom and our home state to help it meet its ambitious climate goals," Leon said. "CCS represents an opportunity to marry the state's ambitions with the capability."

CRC also supports aligning California's CO₂ pipeline regulations more closely with federal pipeline safety requirements to facilitate future CCS development.

Balancing Energy Security and Climate Policy

Analysts continue to debate whether California's regulatory approach accurately reflects refinery economics.

According to Breakthrough Institute analyst Lauren Teixeira, policymakers underestimated how narrow refinery profit margins had become, contributing to financial pressures that ultimately led to facility closures.

Those pressures were compounded by regulatory actions such as California's $82-million air quality penalty against Valero's Benicia refinery—the largest such fine in regional history.

At the same time, California continues expanding battery storage, renewable generation and electric vehicle adoption under Senate Bill 100, which requires 100% renewable and zero-carbon electricity by 2045.

Whether the state can maintain reliable fuel supplies while continuing to pursue its climate agenda remains one of the defining energy policy questions facing California during the coming decades.

---

About the Author

RICHARD NEMEC is a longtime Pipeline & Gas Journal contributing editor. He can be reached at rnemec@ca.rr.com.

---

_Sources

_{1. California Air Resources Board (ARB), Final 2022 Scoping Plan Update and Appendices, California Environmental Protection Agency, 2022. Online: https://ww2.arb.ca.gov/our-work/programs/ab-32-climate-change-scoping-plan/2022-scoping-plan-documents}