Governor Gavin Newsom is considering one of the most dramatic energy policy shifts in California’s history: a possible state takeover of oil refineries. This idea, once unthinkable, has emerged as a proposed solution to the state’s mounting fuel supply crisis. But critics say it reflects a fundamental misunderstanding of market forces and could backfire in ways that would hurt working families and make California’s energy problems worse.
Background: Refineries Shutting Down as Demand for Gasoline Remains Steady
Two of California’s largest refineries are shutting down operations. Phillips 66 plans to permanently close its century-old facilities in Carson and Wilmington by the end of 2025. Valero Energy Corporation also announced that it will shut down or restructure its Benicia refinery in the San Francisco Bay Area by April 2026. Together, these facilities account for about 17 percent of California’s gasoline production capacity.
According to the California Energy Commission, these closures could lead to fuel shortages and further increase prices at the pump. The state is already paying the highest gasoline prices in the nation. In March 2025, California gas prices averaged $1.68 more per gallon than the national average of $3.16. That’s more than 50 percent above the average cost in many other parts of the country.
Instead of increasing domestic production or reducing regulatory burdens, the Newsom administration is exploring the idea of the state stepping in to purchase and operate one or more refineries.
“The state recognizes that they’re on a pathway to more refinery closures,” said Skip York, chief energy strategist at Turner Mason & Co. “The risk to consumers and the state’s economy is gasoline supply disappearing faster than consumer demand.”
Newsom’s Justification: Blaming Big Oil for High Prices
Newsom and other Democratic leaders have long blamed oil companies for high gas prices. In March 2023, Newsom signed legislation to penalize oil companies for profits that exceed limits set by the state. He claimed the new law would stop oil companies from “ripping off California families while making record profits.”
“California leaders are ending the era of oil’s outsized influence and holding them accountable,” Newsom said at the time.
But energy analysts disagree with that view. A 2025 study by Michael Mische at USC’s Marshall School of Business concluded that oil companies are not manipulating prices.
“California refiners have not engaged in widespread price gouging, profiteering, price manipulation, or surcharges, magical or otherwise,” the study stated. Instead, the report blamed state policies for rising prices, citing environmental regulations, high taxes, compliance costs, and declining in-state oil production.
The study predicted that when the Phillips 66 refineries close, gas prices will likely rise and that demand will not decrease. “California will most likely have to increase its imports of California-compliant gasoline, which is costly,” it concluded.
The State’s Proposal: Government Ownership of Refineries
In August 2024, the California Energy Commission released a report outlining 12 strategies to stabilize fuel prices and supply. One of the most controversial ideas was the state purchasing and operating oil refineries. The proposal said the state “would operate a market independent source of production which would eliminate potential market manipulation.”
This approach is similar to how California manages private utilities. Under this model, the state would regulate refinery operations, pricing, and profits in the same way it oversees natural gas and electric providers.
The Commission admitted that gasoline would remain California’s primary transportation fuel through at least 2035, even under the most aggressive shift to zero-emission vehicles. That means millions of gas-powered vehicles will still need fuel for many years, especially among low-income residents who cannot easily afford electric vehicles.
The Commission also acknowledged the complexity of the proposal, stating that there are “many challenges to overcome,” including the cost of buying and operating refineries, the need for highly skilled labor, and the risk of delaying California’s transition away from fossil fuels.
Industry Response: The State Has No Clue What It’s Doing
The oil industry has strongly pushed back on the idea. Catherine Reheis-Boyd, CEO of the Western States Petroleum Association, said the plan is “completely unrealistic” and “shouldn’t even be an option on the table.”
“There are no refineries for sale in California,” she added. “They’re not selling the refinery; they are closing it.”
She also pointed out that California is essentially an energy island. The state lacks pipelines connecting it to other states, and most gasoline imports come by ship. This makes it very hard to replace lost in-state refining capacity.
“The number of refineries in California has dropped from 40 in 1980 to nine,” she said. “You can’t just flip a switch and build another one.”
Skip York raised a different concern. He said a state-run refinery could be used to manipulate the market for political goals. “If the state owned refineries, officials could decrease gas supplies and raise prices to compel more people to move into electric vehicles,” he warned. “You can’t dismiss that possibility.”
Political Blowback and Economic Reality
Republican lawmakers say this situation is the result of California’s own failed policies. “We’re starting to lose refineries because we’ve made it so expensive and impossible to operate in California,” said Assembly Republican Leader James Gallagher. “Now, after we’ve chased them off, we’re talking about taking them over.”
He said the state is heading toward “price controls and government takeover of industries,” which he called a dangerous path. “That’s never worked very well in the history of the world.”
State Senate Minority Leader Brian Jones was even more direct: “The state has no business being in the oil refinery business.”
Meanwhile, energy consultant Mike Umbro said the state collects more from gasoline taxes than oil companies make in profits. In 2024, Californians paid $1.26 per gallon in taxes and fees, with $1.08 going to the state. That totaled about $14.5 billion in revenue.
Umbro said, “Governor Newsom and some Democratic lawmakers are ripping off people at the pump while blaming Big Oil.”
A Delicate Balancing Act with No Easy Answers
Although Newsom’s office has not confirmed a concrete plan to take over refineries, it has supported the Energy Commission’s efforts to explore all options. “California is engaged in meaningful and thoughtful policy work to successfully manage our transition away from fossil fuels over the next 20 years, not overnight,” a statement from his office said.
But critics argue the state still does not understand the basic economics of fuel production. If companies can’t make money refining gasoline in California, they will shut down or leave. And once a refinery closes, it cannot be quickly restarted or replaced.
“We’re not sure all Californians have grasped the urgency of the situation,” Skip York said. “Demand is declining gradually, but supply will fall out in chunks.”
So far, there is no finalized plan, and time is running out. If more refineries close before the state figures out how to replace their output, drivers could be stuck paying even more for fuel, and the government could find itself running an industry it doesn’t know how to manage.
FAM Editor: So he is manipulating the market to prevent market manipulation? This is typical liberal thinking.
