Moonwalker
With eyes on a promotion, Gavin Newsom backtracks on his antagonism of Big Oil.
“The way my luck is running, if I was a politician I would be honest.”—Rodney Dangerfield
In the eight months since we last wrote about the catastrophe-in-waiting that is California’s transportation fuels market, much has changed in the political life of Governor Gavin Newsom. Donald Trump’s victory in November cleared the way for an open primary to choose the 2028 Democratic Party nominee, and Newsom has wasted little time signaling his intent to run. His prospects suffered a setback in the aftermath of the devastating Los Angeles fires, an event that exposed a crisis of competence for the Democrats who run what amounts to a one-party state. He nonetheless is positioning himself as a bulwark against the more extreme aspects of Trump’s agenda while simultaneously softening some of his own far-left positions in preparation for a move to the center.
In that context, the last thing Newsom needs now is a genuine energy crisis. Yet the state is on a collision course with a big one. To briefly recap, California’s market for gasoline is best modeled as a pair of isolated islands, with the northern and southern parts of the state largely disconnected from each other and from the rest of the country. There are no land-based pipelines from other states to make up for market shortfalls, so California must rely on global imports sent by sea, a situation exacerbated by California’s insistence that only specialized formulations of gasoline—known as California Reformulated Blendstocks for Oxygenate Blending (CARBOB)—can legally be sold in the state. With only nine gasoline refineries still in operation and just two weeks of gasoline supply in inventory at any given time, California is one major unplanned refinery outage away from disaster.
It is thus no surprise that Californians pay the highest gasoline prices in the US and suffer significant price shocks when supply runs short. Newsom historically has responded to such episodes by browbeating refiners and ratcheting up regulatory pressure. Such behavior reflects a serious misreading of who holds the leverage: Mere weeks after we flagged the state’s risk, Phillips 66 announced its intent to close its Wilmington refinery—located just outside Los Angeles—by the end of 2025. Two weeks ago, Valero Energy dropped another hammer blow by announcing it will close its Benicia refinery near San Francisco by early 2026:
“Valero Energy Corporation (NYSE: VLO, ‘Valero’) announced today that its subsidiary, Valero Refining Company-California, has submitted notice to the California Energy Commission of its current intent to idle, restructure, or cease refining operations at Valero’s Benicia Refinery by the end of April 2026. Valero continues to evaluate strategic alternatives for its remaining operations in California. ‘We understand the impact that this may have on our employees, business partners, and community, and will continue to work with them through this period,’ said Lane Riggs, Chairman, CEO and President of Valero.
In connection with the evaluation of strategic alternatives for Valero’s operations in California, a combined pre-tax impairment charge of $1.1 billion was recorded for the Benicia and Wilmington refineries, and is expected to be treated as a special item and excluded from first quarter 2025 adjusted earnings. Also included in this amount is the recognition of expected asset retirement obligations of $337 million as of March 31, 2025.”
These developments have left Newsom scrambling. If the closures proceed as scheduled, California will be left with just six large refineries capable of producing gasoline. Worse still, Northern California will be home to just two—one of which, Chevron’s Richmond facility, sits atop the Hayward Fault, one of the most dangerous earthquake faults in the US. Surely, there must be a plan in place to insulate Californians from such a glaring risk? Let’s return to Sacramento and find out.