REFINERY NEWS: Phillips 66's Los Angeles-area refinery closure not due to new California regulations: company

Phillips 66 has decided to shut its 139,000 b/d Wilmington, California in 4Q 2025 because of changing market fundamentals, not because of recently passed regulations on the states refining sector, the company said Oct. 17.

The company’s Oct. 16 announcement to close the Los Angeles-area plant came two days after Governor Gavin Newsom signed into law a bill giving the California Energy Commission (CEC) rulemaking authority over the state’s refinery operations in an effort to smooth out gasoline price spikes resulting from refinery maintenance.

Bill ABX 2-1 became law on Oct. 14, giving the go-ahead to the non-elected CEC to begin the rulemaking process with the aim of increasing fuel inventories to ensure adequate supply of California’s specially formulated, cleaner burning and more expensive CARBOB gasoline.

These actions -- determining how much fuel each refiner should have in storage, where it should be stored, and giving the CEC oversight over refinery maintenance schedules -- were not warmly received by California refiners.

“This decision is not related to the recent bill signing. We want to continue to be a trusted and deliberate partner with the state. This announcement is based on consideration of multiple factors, including future options for the site as part of Phillips 66’s ongoing review of its portfolio of assets,” said Phillips 66 spokesperson Al Ortiz in an email.

Phillips 66 said it will supply gasoline from sources inside and outside its refining network as well as renewable diesel and sustainable aviation fuels from its Rodeo Renewable Energy Complex in the San Francisco Bay area which stopped running crude oil early in 2024.

“We are also not exiting California. Phillips 66 still owns and operates midstream assets and the Rodeo Renewable Energy Complex, which produces renewable diesel that consumers can find at our branded retail stations across the state. We look forward to finding new ways to serve California market,” Ortiz said.

Phillips 66’s Wilmington refinery has 8.18% of the state’s refining capacity, making it the 7th largest of the California’s 14 refineries, according to CEC data.

No surprise

The closure of a California refinery was not a surprise to analysts and market participants who have watched the state’s gasoline demand fall.

According to California's Department of Tax and Fee Administration, taxable gasoline sales have fallen from 15.6 billion barrels in 2017 to 13.6 billion barrels in 2023. Those figures include aviation gasoline, the sales of which have also fallen from 15.1 million barrels to 12.4 million barrels over the same period.

“Not shocking to us, although the timing and specific plant which is closing certainly couldn’t be predicted,” said John Auers, analyst with Nevada-based Refined Fuel Analytics.

“We expected the closure of at least one of the three smaller refineries (Valero Wilmington, PBF Torrance or P66 Wilmington) sometime in the next few years due to the market dynamics that P66 cited for this decision. I’m sure the passage of ABX 2-1 had a role to play in the timing of closure – government interventionism of this sort never works out,” he added.

Phillips 66’s move to close Wilmington also dovetails with forecasts from S&P Global Commodity Insights calling for gasoline supply to tighten.

“The West Coast gasoline market is expected to tighten over the next two years as growing renewable diesel supply weighs on regional refinery utilization, tightening the region’s gasoline balance. Higher imports from Asia Pacific will be needed to supplement PADD 5’s gasoline supply,” analysts said in the October 2024 Commodity Insights Short-Term outlook.

A spokesperson for the CEC lauded Phillips 66’s decision as a step forward in California’s move to a cleaner energy.

“Phillips 66 …has committed to minimizing impacts on Californians … their plan to replace the production lost from the refinery closure is an example of the type of creative solutions that are needed as we transition away from fossil fuels,” said CEC Vice Chair Siva Gunda in an email.

Shrinking refinery capacity

California legislators, bemoaning the closure of the states’ refineries, have said refinery maintenance is a major cause of gasoline price spikes. Refiners point to the high cost of making boutique CARBOB gasoline and what they say is an inhospitable environment they face operating in California.

California's refining capacity has been tightening for decades, to 1.62 million b/d currently from 2.5 million b/d in 1984, according to the US Energy Information Administration.

Phillips 66’s Wilmington refinery produces 70,000 b/d of gasoline, along with jet fuel and diesel, according to Commodity Insights.

"Should the Wilmington refinery close its doors for good, it will in theory trigger an increase in gasoline imports, which could increase CARBOB prices," said Commodity Insights analysts James Bambino and Richard Joswick. "However, gasoline and diesel demand are expected to continue to decline in California, and the refinery closure is more of a validation of that outlook. However, jet fuel demand is growing, and the loss of the refinery’s 25,000 b/d of jet production will tighten balances, firm prices, and pull in more imports."

Between Sept. 1 and Oct. 9, California’s gasoline imports were averaging about 50,000 b/d, with the bulk of the barrels coming from South Korea and China, according to US Customs data. Imports climbed as CARBOB production dropped due to planned and unplanned work at area refineries, including Marathon’s 363,000 b/d Carson plant which cut Southern California CARBOB production to 3.4 million barrels for the week ended Oct. 4, from 3.5 million barrels the week earlier, CEC data shows.

Los Angeles spot CARBOB prices averaged $2.45/gal for the week ended Oct. 4, but as of Oct. 17 were trending lower at $2.38/gal so far for the week ending Oct. 18, according to Platts assessments.

Phillips 66 said it had hired two firms to “evaluate the future use of the 650-acre sites in Wilmington and Carson, California."

Although no plans have been set, Phillip 66 previously repurposed its Alliance refinery in Belle Chasse, Louisiana, into a terminal. And conversion of the Wilmington site into a terminal would further the objectives of ABX 2-1’s storage requirements.

The closure of the refinery will impact its 600 employees and 300 contractors, Phillips 66 said.

The United Steel Workers, which represents most of the refinery’s union workers express dismay over the plans.

“Management’s decision to shut down the Phillips 66 refinery in Los Angeles is a devastating loss for workers and the surrounding communities. Our union intends to bargain the effects of the closure to help mitigate the impacts on our members,” said Mike Smith, head of the USW’s National Oil Bargaining Program.