Phillips 66 is shutting down Wilmington-area refinery complex

Over more than 100 years, the Wilmington and Carson oil refineries have pumped out millions of barrels of gasoline, filling the thirsty cars of Southern California’s freeway-driving motorists.

Now, in an abrupt move that reflects the tectonic industry shifts driven by climate change, the transition to electric vehicles and demands for cleaner air, Phillips 66 announced Wednesday that late next year it is closing the twin refinery complex that produces about 8% of the state’s gasoline.

The Houston company, which has operated the refineries since its 2012 spin off from ConocoPhillips, said it would replace their output with sources “inside and outside its refining network” and with renewable diesel and sustainable aviation fuels from its San Francisco Bay Area refinery.

“Phillips 66 remains committed to serving California and will continue to take the necessary steps to meet our commercial and customer demands,” said Mark Lashier, the company’s chairman and chief executive. “We understand this decision has an impact on our employees, contractors and the broader community. We will work to help and support them through this transition.”

About 600 employees and 300 contractors currently operate the refinery, which also produces diesel and jet fuel.

The refinery complex consists of two facilities five miles apart in Wilmington and Carson, linked by pipeline, about 15 miles southeast of Los Angeles International Airport. The Wilmington facility was built in 1919 and the Carson refinery was built four years later, with both operating under multiple owners over the years.

“There’s no question we are going to lose refineries over time, because demand is going to go down as we transition to electric vehicles, but I did not expect to see any of them exiting this quickly,” said Severin Borenstein, faculty director of the Energy Institute at UC Berkeley’s Haas School of Business.

California “over the medium term” will have to rely more on imports, he said. “I think part of the response the state’s going to need to consider is how to make sure that we can import sufficient gasoline to meet our needs.”

The closure will leave the state with eight major refineries — three in the Bay Area and five in Southern California, operated by Chevron, Valero and others — as well as several smaller ones.

The Phillips 66 decision immediately became a political football, with Republicans and gas station operators blaming the policies of California Gov. Gavin Newsom. Last weekend, former President Trump, in a California campaign stop, blasted the state for having the nation’s highest gas prices.

The announcement comes in the same week that the governor signed a new law that allows the state to require oil refiners to maintain a minimum inventory of fuel to avoid supply shortages that create spikes in gasoline prices. It also authorizes the California Energy Commission to require refiners to plan for resupply during refinery maintenance outages.

“Thanks to Gavin Newsom’s showboating and incompetence, hundreds of workers will lose their jobs while California drivers will face a massive price hike,” Assembly Republican Leader James Gallagher of Yuba City said in a statement. “Great work, Gavin.”

The California Fuels and Convenience Alliance, an industry trade group representing fuel marketers, gas station owners and others, directly blamed the legislation.

“Unfortunately, the announcement today is not much of a surprise, as we continually warned the Legislature and Administration about how [the measure] would negatively impact supply,” said Alessandra Magnasco, the alliance’s governmental affairs and regulatory director. “This is exactly what happens when our leaders are more concerned with political theater than solving real problems.”

The alliance said higher gas prices are the result of “exploding overhead costs to run our stations, costly environmental regulations.”

In a statement, Phillips 66 said the decision was “not related” to the bill signing, but rather “on consideration of multiple factors, including future options for the site as part of Phillips 66’s ongoing review of its portfolio of assets.”

It also said it was not pulling out of the California market. Among its other operations are its network of 76-branded gas stations. The company said it has engaged Catellus Development Corp. and Deca Cos. to examine future uses for the combined 650-acre site.

The governor’s office referred questions to the California Energy Commission.

“The company has committed to minimizing impacts on Californians while they continue to meet fuel demands, maintain reliable supplies, and ensure they take necessary steps to fulfill both commercial and customer needs,” California Energy Commission Vice Chair Siva Gunda said in a statement.

David Hackett, chairman of Stillwater Associates, an Irvine oil consultancy, said he was contacted by Phillips just before the announcement, and was told the closure was a business decision.

He said that although the timing was somewhat surprising, the closure wasn’t, given the age of the refineries, their relatively small size and the inefficient layout that connects them by a pipeline.

“That plant has been for sale for years. It hasn’t found any buyers and I think is that this has been an economic decision on their part. They looked at the profitability of the place and compared it with the other businesses that they have, and it didn’t make the cut,” he said.

Factors that played into the decision, he said, included an “onerous” regulatory environment that increases costs, lower demand for gas, and a dwindling supply of California crude oil, forcing the refinery to rely more on expensive shipments from Alaska and foreign countries.

He noted that over the last eight years, Phillips 66 has only broken even on its West Coast operations, which include a Washington state refinery, according to regulatory filings. “CEOs get fired for that,” he said.

California energy policy has been driven by the state’s climate goals, first articulated in a landmark 2006 law and updated two years ago, which call for the state to become carbon neutral by 2045.

They include reducing fossil fuel consumption 94%, slashing greenhouse gas emissions by 85% and cutting air pollution by 71% — ambitious for the world’s seventh-largest economy, which ranks behind only Texas and Louisiana in refining capacity.

A major strategy for reaching those goals is a law requiring all new passenger cars, trucks and SUVs sold in California be zero-emission by 2035, a goal some have questioned whether the state can meet as electric vehicle sales have slowed.

At the same time, Newsom has put the squeeze on drillers, directing the state to stop issuing fracking permits this year and calling for the phasing out of oil extraction by 2045. He also has backed laws restricting drilling. Last month, he signed a bill allowing cities, counties and local voters to block construction of new local oil and gas wells.

The California Air Resources Board is considering furthering tightening carbon fuel standards, which already penalize refineries that make high-carbon fuel such as diesel and gasoline, and benefits makers of lower-carbon fuels such as renewable diesel.

Hackett noted that Phillips 66 converted its larger, 1,100-acre refinery in Rodeo to make renewable diesel out of raw materials such as soybean and used cooking oils. However, the conversion reduced capacity to about 40,000 barrels a day, he said.

The closure of the South Bay refinery complex comes after long battles with neighbors, who have complained of emissions from the twin plants — despite tightening air quality refinery rules issued by the South Coast Air Quality Management District.

Any new use for the industrial property would almost certainly be less intensive.

“Historically, the South Bay industrial real estate market has been extremely tight and this will allow a ton of new inventory and capacity that should help the market by providing more warehouse and distribution space” around the Port of Los Angeles, said real estate broker Mike Condon Jr. of Cushman & Wakefield, who helped manage the process of selecting a development partner for Phillips 66.

Phillips 66 also has been the subject of controversy over its role in climate change, leading to calls for the removal of its iconic “76” sign at Dodger Stadium.

Times staff writer Roger Vincent contributed to this report.