Gas company Phillips 66 left California. A year later they plan to return.

A Texas oil company that left California in 2025 is returning (sort of), with plans to build a cross-country pipeline to the Golden State.

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Late last year, Houston-based Phillips 66 shut down its Los Angeles refinery. Following other refinery closures in the state and oil supply disruptions from the war with Iran, the move has left California with a fuel supply crisis and skyrocketing prices. 

Now, Phillips 66 (alongside its partners, Kinder Morgan and HF Sinclair) wants to return to the region with the Western Gateway Pipeline. This multibillion-dollar pipeline project would hold up to 230,000 barrels of oil per day and stretch 1,300 miles cross-country, according to a Tuesday news release. 

California consumes 36 million gallons of oil per day, according to the California Energy Commission. Though Paasha Mahdavi, a professor at the University of California Santa Barbara whose research specializes in the impact of oil and gas resources on governance and environmental politics, told SFGATE by phone that the pipeline doesn’t mark “a true boomerang effect” for Phillips 66, it does show the importance of the California market.

“It’s more a reflection of companies shifting operations to lower-cost refining regions while retaining access to California consumers,” Mahdavi said. “The economics appear attractive enough that Phillips 66, HF Sinclair and Kinder Morgan are willing to invest billions of dollars in new infrastructure.”

California is a fuel island

Gov. Gavin Newsom, industry makers and academics largely agree — California is isolated as a fuel island.

“For years, industry has pointed to California being a ‘fuel island’ as a challenge,” Anthony Martinez, a spokesperson for Newsom, told SFGATE in an email. “Now, we have a solution underway — a bridge connecting California to the rest of the country’s fuel supply. We’re encouraged by this investment and support efforts that strengthen the resiliency of California’s fuel supply as we continue reducing our dependency on oil.”

Californians pay more at the pump than any other state: an average of $5.60 per gallon, compared with roughly $4.04 nationally, Mahdavi said. Currently, with so few refineries and fuel storage facilities, oil providers can exploit the lack of competition and raise prices.

“The state is effectively detached from the rest of the country’s refined fuel market, particularly for gasoline, diesel and jet fuel,” Mahdavi said. “We have relatively few refineries, and those refiners have considerable control over supply and pricing.”

Returning to California’s refineries would be an expensive move for Phillips 66 due to the facilities’ age, leading to higher operating costs and lower efficiency than in other states, according to Mahdavi. Instead of returning to California, businesses are looking for cheaper ways to get fuel to Californians.

“In many cases, it’s now cheaper and easier to refine fuel outside California and ship it into the state than to refine it here,” Mahdavi said.

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The effect at the pump

If the project moves forward, it won’t be completed until 2029 — which means Californians won’t be feeling the effects anytime soon.

Of the timeline, “That’s ambitious…and wishful,” USC professor Michael Mische, who wrote “A Study of California Gasoline Prices,” told SFGATE in an email. “… Pipeline projects, as we see in California, are often contentious, attract significant public attention, and are generally plagued by litigation. The litigation common with these projects can slow the construction, testing, and certification processes.” 

Mische also said the state would likely have access to only about 55,000 to 85,000 barrels per day. Any gasoline coming into California from other states through the pipeline also would need to meet California’s standards for its unique blend. According to the Energy Information Administration, California gas prices include fees that fund cleaner fuel to meet environmental standards.

Even with those caveats, the pipeline could bring some advantages to drivers. If it were built, more competition and increased supply during refinery outages could make fuel prices more stable. 

“Consumers may not necessarily see dramatically lower prices, but they may avoid future price spikes that would otherwise occur,” Mahdavi said.

A new pipeline in a clean-energy state

California has prioritized transitioning to cleaner energy sources, including subsidizing the purchase of electric vehicles and planning to ban the sale of new gas-powered vehicles in the state by 2035. These moves also help reduce the state’s dependence on imported oil. 

“Companies are seeing long-term declines in California fuel demand,” Mahdavi said. “That’s one reason Phillips 66 exited refining operations in the state. Vehicles are becoming more efficient, EV adoption continues to increase, mass transit usage has improved, and California’s gasoline consumption has been trending downward since around 2018, even before COVID-19.”

While the state is weaning itself off oil, it still needs fuel for the millions of vehicles that hit the road every day. Mahdavi pointed out that the pipeline could carry other fuels, such as hydrogen or natural gas. In the meantime, the companies should have to abide by strict safety regulations. 

“Portions of the project in Arizona, particularly in the Sonoran Desert and Pima County, have already drawn concerns from tribal leaders and environmental groups,” Mahdavi said. “Ideally, developers would work with local stakeholders and adjust routes where necessary to avoid environmentally sensitive areas. The broader environmental debate comes down to a question of trade-offs.”