California Policymakers Ponder State Ownership of Oil Refineries
California appears to be entering in the “FO” phase of the FAFO cycle.
I have another article to add to the collection on California’s War on Fossil Fuels.
Legal Insurrection readers may recall that Governor Gavin Newsom signed into law a measure ordering energy producers to stockpile gasoline, despite pushback from industry.
Soon after, Phillips 66 announced plans to stop operations at its Los Angeles-area refinery in the fourth quarter of 2025. Meanwhile, energy giant Chevron moved its headquarters to Texas, citing high taxes and burdensome regulations.
A more recent salvo from our politicos targeting oil companies was the introduction of a new CA Senate bill allowing victims of wildfires and insurance companies to sue oil companies for damages caused by storms, wildfires, and other disasters (often exacerbated by the lack of infrastructure, preventative maintenance, and adequate response resources… otherwise known as “climate change”).
As SB 222 winds its way through our legislature, California policymakers are exploring the possibility of state ownership of one or more oil refineries.
California policymakers are considering state ownership of one or more oil refineries, one item on a list of options presented by the California Energy Commission to ensure steady gas supplies as oil companies pull back from the refinery business in the state.
“The state recognizes that they’re on a pathway to more refinery closures,” said Skip York, chief energy strategist at energy consultant Turner Mason & Co. The risk to consumers and the state’s economy, he said, is gasoline supply disappearing faster than consumer demand, resulting in fuel shortages, higher prices and severe logistical challenges.
I will point out that the Los Angeles Times article references Russia, Iran, China, and Venezuela in the opening of its article on the subject. If California wants to do Premium Communism, versus the unleaded variety its citizens are currently subjected to, this would be the way to do it.
California appears to be entering the “FO” phase of the FAFO cycle. By mandating electric vehicles (EVs), gasoline consumption has declined. Free market forces are now acting to reduce losses, and there is a potential for even more refinery closures.
Gasoline consumption in California has dropped 15% since peaking in 2005, according to the Union of Concerned Scientists. Electric vehicles now represent about 25% of new car sales, with the state mandating all new passenger vehicles be zero-emission by 2035.
Major refiners are responding to these shifts. Chevron (NYSE: CVX), which announced its headquarters move to Texas last year, confirmed it has considered ending production at its California refineries. Two facilities have already switched from gasoline to biodiesel production.
“Recent California policies, like banning the sale of new internal combustion engine vehicles by 2035, the potential tax/penalty on refinery profits and the potential new minimum storage requirement are all headwinds to our business and erode our confidence going forward,” said Andy Walz, Chevron’s president of downstream, midstream and chemicals.
“We’re moving toward price controls and government takeover of industries. That’s never worked very well in the history of the world,” said Assembly Republican Leader James Gallagher.
There is a great deal of skepticism about plans for California state ownership. If you consider California’s response to wildfires and its complete ineptitude in constructing the “bullet train”, the very reasonable concerns about California’s historical inefficiencies in its government-run programs (especially over the last 20 years) and the potential for increased costs and logistical challenges should put a pause on this mad-cap scheme.
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Comments
Come on now, Leslie. Past performance should accelerate “this mad-cap scheme”. After all, this time has to be different. Also, any fired Federal employees who can’t “code” surely must be able to run refineries.
Of course. They are brilliant people. Immediately able to understand the grunt work, filthy work, of petroleum distillation.
I sense some sarcasm in these remarks, jb4.
Being owned by the state won’t make it pollute any less.
California has an abundance of incompetent people, DEI and otherwise. They will end pollution by botching running the refineries.
The ones with any common sense moved out already….but having idiots in charge of large quantities of highly volatile Petroleum distillates….what could go wrong?…🤣
If Cali Democrats took over the Sahara, in six months there’d be a shortage of sand
Most down to earth statement I have heard in a long time.
Wait….CA did everything it could to close them down. Sued them repeatedly, made them brew an expensive gasoline that no-one wanted. Made them take exhaust down to near zero. Lied about the business. Made the refineries hire incompetent women and gays as officers and directors….and then finally asked them not to sell 10% of product.
So why not just let them leave?
Many corporate executives are as woke as any Antifa/BLM stormtrooper.
Francisco D’Anconia, call your office.
I can hardly wait for the bio-diesel plants to show their black-top and roofing asphalt products.
You mean, weeds?
No matter what the question is, in California the answer is: Government Control. They define for us the word “progress.”
There is no progress in progressivism.
.
So, what happens when drillers refuse to sale their crude oil, because Cali doesn’t want to pay them market value for their product?
You must not have read the article headline….
How does the state owning the refinery compel producers to sell their product to the state? Seems like they should be able to sell their products to any refinery they choose though that may not be in California. California can still get petroleum products though they will probably have to pay a premium for the increase transportation and storage costs.
California is one of the largest oil producing states in the country. If it comes down to their state owned refineries not being able to get crude they will be forced to seize the drilling rigs. Maxine Waters said this years ago.
Sorta about production and very possible about seizure. CA ranks 7th among State Oil producers bringing about 120 million bpd. While that is roughly 4% ish of the USA total it is dwarfed by the six States above it which combine to bring in about 75% of total US oil production. The total production of domestic CA oil accounts for less than 25% of their annual volume of oil refined in CA. 60% comes from Foreign sources with the remainder coming from Alaska. Unless they start authorizing more drilling on/off shore no way they can fully supply their own fuel requirements.
California produces 463,000 barrels of oil a day.
CA was 3rd largest state for oil long time ago, back in the days when CA was purple state and republicans could get elected governor. The oil is still there in the ground, but leftists don’t want it to be produced.
If Mad Maxine’s plan to: ” nationali….. basically take over” oil production ( she knew the “N”ationalize word would prove she was Marxist Maxine) I suggest producers take the Sadam Hussein solution to Kuwaiti oilfields…..
accidents happen all the time in the oil patch.
Ah–a Walz on the right side, for a change.
Refinery operators should remove equipment from plants they shut down. California wants to “nationalize” them? Fine, they can rebuild them too – at a high co$t.
And remove the people who know how to work them.
Oh boy. The definition of socialism is “state ownership of the means of production”. So this would make California officially socialist. And we all know how that works out.
The “Union of Concerned Scientists” is well-known as a bastion of the left, probably originally funded by the USSR, and dedicated to opposing anything that will advance prosperity in the USA.
No “probably” about it.
Isn’t that the definition of communism?
Socialism: Controls, but does not own, the means of production (e.g. Germany’s National Socialism)
Communism: Both controls and owns the means of production
A state that owns the means of production would, perforce, control it.
No.
The Socialism you describe was the version in the Weimar Republic and in NAZI Germany. And to varying degrees, the current West. The State allowed private ownership of enterprises but directed every aspect of their operation and the economy. Von Mises described that as “German Socialism”, aka National Socialism. Shortly after the war, Britain engaged in actual Socialism, wherein they seized companies and ran them. Poorly. Luwig called this British Socialism. The version usually thought of.
Communism is seizing control of all private property, “for the people.” And running it very poorly indeed. Marx called Socialism the step towards the utopia of communism. Until it reached that utopia, it was socialism. They could never get it to work. Because it can’t.
Socialism doesn’t require the ownership of the means of production, only it’s direction. When an industry is both owned and directed by the state, that’s communism. Granted, in CA’s situation it won’t eliminate all private property, making of it a communist state, but it will be invoking communist-style control of an industry because it’s proposing state ownership (elimination of private ownership) of an industry and not merely its control. If CA does this, it may not even yet reach the status of “socialist state,” but it will have engaged in a communist-style takeover of an industry. Von MIses’ “British Socialism” seems to me the adornment of a pig with lipstick. Control and ownership of an industry qualifies as “communism,” no matter how it’s labeled, if only a baby step towards the complete conversion.
Only California can look at Venezuela and see a role model.
New York State has entered the chat.
So the Marxists are running California
Wonder when the Gulags will open to start running a high speed railroad
And they can’t run any business without failure what makes them think they can run a refinery? It will have 543 supervisors, 521 as no show jobs each making 1/4 to 1/2 million a year.
Two things. Generally a plant will spend 5% of capital on maintenance/replacement capital. So $1 b plant means $0.5 b over next 10 yrs. CA is expecting demand to go down so what return can the companies expect? I would predict that the companies would see a better return by investing that money outside of CA.
CA taking over should give everyone nightmares. Look at Venezuela. Kicked out oil company and ran it themselves. Pretty soon everyone running (or pretending to run) it was politically-connected. That hasn’t worked out well.
“That hasn’t worked out well.”
An oil pun?
5% of 1 billion is 0.05 billion.
$0.5 billion over ten years.
The last 5 minutes of Lawrence of Arabia are the best.
Running a refinery takes a lot of work by hard nosed men and hard nosed women who are very knowledgeable about what they are doing, and who have a strong dedication to safety. Refineries are not a place for political hacks. If California takes over the refineries, expect product shortages, high costs of do-nothing workers, with fires and explosions tossed in for good measure.
Yup. Then there is this;
https://www.latimes.com/california/story/2025-01-26/horrifying-fire-at-california-battery-plant-sparks-call-for-new-clean-energy-rules
I noticed California brussel sprout production ended after that fire and brussel sprouts produced in Mexico appeared in local grocery stores. What did it do to the soil and upcoming strawberry crops?
This really isn’t a problem. Foreign experts are already contracted to train the new state workers. They’re coming from he Wuhan Institute for Petrol Refinering.
And all those problems will be blamed on – wait for it – Trump and climate change.
The California government owning and operating an oil refinery.
Now THAT will be clusterfuck of epic proportions!
They can keep the price down, too, leaving only the availability problem.
At what point do we say that California has drifted so far left, and so far out of the mainstream, that we just say to them – go be your own country – and expel it (and yes, the conservative counties that want to form the State of Jefferson would stay in the Union).
Does anyone know what the constitutionality of this might be? Has any previous state tried to nationalize the production of a commodity that’s traded both nationally and internationally? Not a lawyer, but it seems like there could be a host of problems particularly pertinent to the Commerce Clause and the Supremacy Clause.
It isn’t a nationalization of the industry, at least as I understand it. They are looking to try and acquire the facilities that are being closed to keep them open. Bad idea IMO b/c if they could be operated at a profit the private sector would do it. Then there’s the unsavory nature of the acquisition. Why closing? Gov’t interference. So the same Gov’t which basically runs them out of business is gonna acquire them and everyone is gonna say ‘ok cool’ instead of describing it as form of extortion?
Yeah, maybe not nationalization….at least not quite yet even though that’s clearly the direction something like this would be headed. But, definitely an anti-competitive action by the state. I’m trying to think of a historical analog in a different industry, but I really can’t think of one. Maybe they would argue that local/state ownership of an airport or metro-rail or dock operation would be similar. But, those things aren’t selling products – commoditized products – that compete with private companies in the free marketplace. They’re selling a service that largely can only operate on government-owned land.
Where would it end? Could a local or state government set up their own retail pharmacies & grocery stores or other retail shops particularly where their own permissive crime policies have driven commercial retailers to leave the area? If they’re allowed to do this for gasoline, I don’t see why those wouldn’t be the next items on their agenda.
Agreed. The terminology aside, the result would be bad on all the levels you and I laid out no matter what we ended up naming it. Can’t have a Gov’t that sets up replacement operations after driving out private enterprise via active measure (bad regulation) or passive inaction (refusal to address shoplifting, hobo encampment, other crimes).
I’ve long believed that CA’s rules concerning auto emissions were an unconstitutional intrusion into Congress’ exclusive legislative jurisdiction over articles that move in interstate commerce. It’s only a few years ago that I learned CA is able to regulate the types of autos sold in the State because they have federal leave to do so.
But if this is so, and it is, TargaGTS’ question is a good one. And I have another: Aren’t these same problems attendant to a State’s firearms restrictions? Firearms, like autos, are articles that move in interstate commerce, and I’m not aware of any federal dispensation that allows CA (or any other State) to infringe upon Congress’ exclusive legislative jurisdiction over interstate commerce in them. State firearms regulations that are more strict than federal law are likely similarly constitutionally problematic.
It is not the case that states can’t regulate anything that has moved between states. If that were the case then states couldn’t regulate almost anything at all!
The reason CA needs a federal waiver to set its own standards for cars and gasoline is because Congress has passed a comprehensive regulation scheme for these sectors, that preempts the entire field and leaves no room for state regulations.
Congress has not done that with firearms. It could, but it hasn’t, and so states are free to make their own regulations on top of the federal ones. The only thing they can’t do is discriminate against guns imported from other states, in order to give an advantage to guns made within their state.
And of course neither the states nor Congress can infringe the right to keep and bear arms.
Truman tried to nationalize the steel industry in 1952 on the grounds of national security (Korea was going on). The USSC ruled 6-3 that this was a no no.
Be interesting to see how this plays out.
Will ANYONE EVER invoke Art 4, Section 4?
When socialism fails just apply more socialism.
We like to call them communists and they LOVE to prove us correct.
Of course they want to do it. I mean, it worked so very well in Venezuela.
When they leave, the oil companies should overtly or covertly scuttle the plants they’re leaving, rendering them inoperable, unusable, and irreparable. I mean, CA thinks oil and gas evil, so why not?
No need. The software needed to run the process is proprietary, so it *must* be wiped before transferring ownership (unless CA rents it). The process of turning crude into petrol has no end of patented processes involved, none of which can be used by the State unless paid for. (and if they try *without* paying royalties, the case will go to Federal court, where CA will fare…poorly) Once shut down, turned off, and hard drives wiped, it could take the original company two years to get it running even if CA were to stand aside and let them. It would take CA a decade at minimum to do the same.
Exactamundo. The control software for modern refineries is crazy complex and expensive. It ain’t just like downloading an app.
And once the refinery stops working, everything has to be brought back online again, piece by piece, which requires the workers who know the quirks of the often old and finicky equipment. And how will California convince such specialized workers (mostly men, largely white) to stay? (Maybe it’ll just mandate that they are involuntary state employees . . . .)
And, of course, even with competent management, refineries are inherently dangerous places that can and do go BOOM. (I was born in Port Arthur, TX, which was the home for many huge refineries, with family members who spent their entire careers working at them.) Given the degree of competence Cali’s government has demonstrated lately, I’d bet heavily that such would occur sooner rather than later.
Not a good example as clearly the wrong people in charge were to blame. /s