Ringside: Lines for Gas Coming to California

Achieving California’s goal of net zero by 2045 requires rapidly transitioning away from combustible fuel. It’s a risky strategy. If the transition happens too fast, Californians confront energy shortages and high prices.

When it comes to electricity, Newsom has so far managed to avoid an acute crisis by sensibly prolonging that transition. In 2023, he delayed the planned closures of three natural gas-powered generating plants that together contribute 2.2 gigawatts to California’s electricity grid. In 2022, Newsom delayed the planned 2025 closure of California’s last major nuclear-powered generating plant, Diablo Canyon, preserving another 2.2 gigawatts of baseload power.

Newsom may not be so lucky with gasoline and diesel fuel.

To put this into perspective, California still depends on petroleum for 47 percent of its total energy. And despite impressive gains in electric vehicle adoption, 94 percent of all energy consumed in California’s transportation sector still depends on petroleum. This fact means that for the foreseeable future, the movement of people and goods in California is overwhelmingly dependent on petroleum.

To accelerate the transition from petroleum fueled to electrified transportation, the state legislature has disincentivized the production, distribution, and refining of oil in California. Cities and counties have followed suit. That strategy is exemplified in the numbers: In 1986, California’s in-state production of crude oil reached its peak at 402 million barrels against demand of 676 million barrels. In 2024, production had fallen by 70 percent to 119 million barrels, with demand also falling, but only by 24 percent to 511 million barrels. California now imports nearly 400 million barrels a year.

The problem with replacing in-state oil production with imports – notwithstanding the loss of jobs or the outsourcing of environmental impact – is that California’s oil industry now sits at the precipice of complete collapse, and if that happens, more imports will not prevent lines at the pumps.

The problems begin with drilling permits, which have to be issued every year in order to maintain production. But CalGEM (California’s Geologic Energy Management Division) has reduced drill permits from over 2,000 per year through 2020, to only 500 in 2021 and 2022, and to barely 100 in 2023 and 2024 Because the life cycle of a well in California is around 25 years, and because towards the end of their life cycle their daily production diminishes, the industry has now experienced five years where almost no new production is making up for lost production. This means the slow decline in production we have seen over the last 40 years is about to be exchanged for a potentially unmanageable decline of 15 percent or more per year.

This imminent decline is compounded by the fact that production can’t recover merely because CalGEM issues more drilling permits. The industry is leaving the state. Most of the companies that operate drilling rigs, and the engineers and geologists they employ, have already left, and they’ve taken their equipment with them. The thousands of oil rig workers, as well, have either left for Texas and elsewhere, or they’re finding other work. It would take years to restore California’s oil industry, and meanwhile, production will continue to decline.

There is a domino effect when production crashes. In particular, the many pipelines that transport crude oil up and down the state are not designed to physically operate if the flow of oil falls below around 25 percent of their capacity. If production in the oilfields that supply them falls much further, these pipelines will shut down. Already there is a possibility that the San Pablo pipeline, California’s biggest inland oil pipe, could shut down. The company is losing money as fixed costs cannot be covered by the dwindling amount of throughput. But even if regulators approve cost increases, the continuing decline in flow means the pipeline cannot function much longer.

Imagine the impact on California’s gasoline supply when oil producers in Kern County have to ship their crude via tanker truck to refineries because their northbound pipeline is offline. For that matter, imagine the additional impact as production in Los Angeles, Ventura, and Santa Barbara counties also crashes, a process already well underway.

The supply crunch faces additional challenges because California is also set to lose two of its oil refineries. With the announced closure of Phillip 66’s Long Beach refinery and Valero’s Benicia refinery in 2026, production will drop to 1.34 million barrels per day. In 2024, the state’s total crude oil consumption was 1.40 million barrels per day. Demand is not falling fast enough to cover this: California’s consumption of crude oil over the past few years, in millions of barrels per day, are: 2021 = 1.44, ’22 = 1.44, ’23 = 1.45, ’24 = 1.40. Not much of a trend. Getting that down to under 1.34 is possible, but it won’t be easy.

It is glib for lawmakers to suggest all of this can be handled by increasing imports. As in-state production of crude collapses, the intake capacity of seaport facilities will have to be increased to accommodate more tankers, requiring a major infrastructure investment. And as refinery capacity drops below in-state demand for gasoline and diesel fuel, it will be necessary to import refined gasoline. This not only would require different facilities to receive, store, and distribute imported gasoline instead of crude oil, it would also have to be gasoline refined to California’s very exacting and unique formulations.

Through massive subsidies of renewables, interstate purchases, and a hesitancy to precipitously eliminate conventional sources of power, it may be that California may never experience another electricity crisis equal to the one that nearly paralyzed the state back in 2000. The victims are the ratepayers, but at least power blackouts are unlikely.

Oil is another story. The industry is leaving because the state legislature has made it impossible to do business here. If the state legislature had adopted a more rational, market-driven transition away from oil, the probability of a supply crisis might be reduced. As it stands, however, it’s probably too late.