Ringside: Can California’s Oil Industry Survive?

Even confirmed skeptics should be impressed at the rapid improvement in the price and performance of EVs. A new 2026 Nissan Leaf sells for just under $30,000, and can charge in 30 minutes. That’s still not competitive with affordable gasoline powered vehicles, but the gap is closing fast.

But while we may be sanguine about the technology catching up, there is the so-called installed base that isn’t going anywhere soon. Of the 35 million registered vehicles in California, only 2.5 million are EVs, and virtually all of the state’s more than 100,000 heavy commercial trucks are diesel powered.

Meanwhile, the dismantling of California’s oil industry proceeds at a pace far exceeding the capacity of an EV infrastructure to match. Last year on December 15, the San Pablo pipeline shut down. It was the only pipeline connecting the inland oil fields in central and southern California to refineries in the San Francisco Bay Area.

The problems for San Pablo began as soon as California’s oil production began to fall. In 1986, California’s in-state production of crude oil reached its peak at 402 million barrels against demand of 676 million barrels. By 2024, production had fallen by 70 percent to 119 million barrels. Demand also fell, but only by 24 percent to 511 million barrels.

As production fell in California, the state’s refineries made up the difference with imports from the Middle East, South America, and Alaska. And as California now imports nearly 400 million barrels a year, fewer barrels move through pipelines from oilfields in Kern County to refineries on the coast.

Estimated utilization of the San Pablo Pipeline was down to 15,000 barrels per day prior to shutdown, barely a quarter of what it needs to operate cost-effectively. And then Valero announced it was shutting down its refinery in Benicia, leaving only one refinery left in Northern California still refining crude oil.

These moves invite many questions. At 15,000 BBL/day, the San Pablo Pipeline was moving 5.4 million BBL/year into Northern California. Valero was refining 53 million BBL/year, and PBF Martinez will still be refining 57 million BBL/year. Could PBF have picked up the oil Valero would no longer process, cutting their imports accordingly?

That’s a big if, since it might require renegotiating purchasing agreements with importers, but the bigger challenge remains the fact that even at 15,000 BBL/day, the San Pablo Pipeline was losing $2 million a month. They needed to raise rates by about $4.00 per barrel just to break even. The pipeline requires ongoing investments in maintenance that can only be justified if the owners expect to be operating for another 10-20 years or more. Nobody in the oil industry in California at this time has that sort of confidence.

The consensus across most of California’s oil industry is that the dominoes are falling. CalGEM, the regulator that approves drilling permits, has pretty much froze permitting for going on five years. There are plenty of oil reserves left in California, but rates of production for most wells are maximized in the first 5-10 years then taper down to become uneconomical usually within 20-25 years.  Without a continuous program of new drilling, even existing fields with most of their oil still in the ground can become unproductive.

And then there are the refinery owners. In response to escalating regulations, Valero’s Benicia refinery is not the only dropout. Also giving up on California is the Phillips 66 refinery in Long Beach. These two refineries together processed 104 million barrels of crude oil per year, and shutting them down drops refinery capacity by 18 percent. California’s consumption of crude oil in 2024 was 511 million barrels, and with these two shutdowns, total refinery capacity drops to 488 million barrels. It will take years for EV growth to cover this gap.

And so, with refinery capacity in California now dropping below demand, the Valero refinery is repurposing its facilities to import gasoline. Not just any blend, but gasoline formulated to California’s unique specifications. All of these factors mean Californians pay more: The unique gasoline blending requirements, the much higher gasoline taxes, the mandatory purchases by refineries of emissions credits from CARB, the cost to truck crude oil (at a paltry 200 BBLs per 18 wheeler) instead of using a pipeline, the cost to ship refined gasoline from remote states and nations instead of refining it here.

The California State Legislature is belatedly realizing that they need the globalized oil industry more than the globalized oil industry needs them. Large oil companies can go anywhere. Why should they stay in California, where a hostile state legislature and hostile attorney general are doing everything in their power to destroy them? Why invest here, when there are welcoming states and nations where the return will be greater and the risk will be less?

In recognition of the fact that EVs will not dominate the market overnight, nor will they swiftly replace the diesels powering big rigs, the state is backpedaling. But it’s not enough. They’ve resumed issuing drilling permits, but only in Kern County, ignoring fields with huge potential in Los Angeles and Santa Barbara counties and elsewhere. And everywhere in California, including in Kern County, SB 1137 requires drilling rigs to be at least 3,200 feet from any inhabited structure. The practical effect of this law is to exclude large portions of the state from new drilling and to force the shutdown of existing wells within these “health protection zones.”

To ensure affordable gasoline and diesel fuel in California, state politicians, and the voters who hold them accountable, need to rearrange fundamental premises:

First, even if California’s energy transition remains prioritized at great expense to the consumer, it is going to take several decades, if ever, before petroleum-based fuel can be completely replaced in the state.

Second, since California has the among strictest environmental standards and labor laws in the world, why shouldn’t we use our own reserves of oil instead of importing oil? Instead of losing thousands of highly skilled and well-paid oil industry workers, we would increase their employment.

Third, not so obvious but perhaps most important of all, the only way to put a permanent end to leakage of methane and volatile organic compounds from capped wells and natural seeps is to deplete the underlying reserves of oil. Every other technique, no matter how costly and comprehensive, is doomed to fail thanks to California’s active faults that perpetually open natural vents in the earth’s surface.

Every year, the allure of an EV for light commutes attracts more consumers. But while that is a harbinger of an electric future, the timeline is decades, not years.