The recent fire at the state’s second-largest oil refinery in El Segundo has sparked concerns about a potential surge in Southern California gas prices. The explosion, which occurred on Thursday evening, produced a massive fireball and caused damage to a jet fuel production unit. As of Friday morning, while some flames were still visible, the overall damage to the 1,000-acre refinery complex appeared minimal. The refinery, which has been operational since 1911, plays a crucial role in the region, producing roughly one-fifth of all motor vehicle fuels and 40% of the jet fuel consumed in Southern California.
This incident comes at a time when the region is already grappling with tight fuel supplies due to limited refinery capacity in California, a state that relies heavily on imports, bringing in hundreds of thousands of barrels of gasoline daily. Severin Borenstein, an economist and faculty director at the Energy Institute at UC Berkeley’s Haas School of Business, noted that while it is still early to assess the full impact of the fire, such disruptions typically lead to a spike in wholesale spot prices, which are likely to be reflected at the gas pumps within days.
If the El Segundo refinery remains offline for an extended period, experts predict a significant increase in gasoline prices. Although imports and stored gasoline could help mitigate shortages, the arrival of additional imports can take up to a month. Borenstein emphasized the potential for a sharp price spike, especially as many refineries in the state are already scheduled for maintenance. David Campbell, field director with USW Local 675, revealed that the fire originated in the refinery’s Isomax complex, which is essential for converting gas oil into higher-value products, including jet fuel.
In 2015, a significant explosion and fire at the Exxon Torrance refinery led to a prolonged spike in gasoline prices, taking nearly a year for the facility to fully return to operation. However, recoveries from other refinery disruptions have generally been quicker and have resulted in a smaller market impact. Campbell pointed out that the extent of the disruption caused by the fire will ultimately dictate the effect on gasoline production and pricing.
As of now, the average price of a gallon of gasoline in the Los Angeles-Long Beach area stands at $4.718, reflecting an increase from $4.639 a month ago and $4.543 a year ago, according to AAA. The timing of the fire is particularly critical, as the Phillips 66 twin refinery complex in Wilmington and Carson is also winding down operations after the company announced its closure last year. Additionally, Valero has announced plans to close its Bay Area refinery early next year, contributing to a loss of about 20% of the state’s oil refining capacity.
The closure of the Los Angeles-area refinery has sparked political debate, with Republicans and gas station operators attributing the state’s high gas prices to the policies of California Governor Gavin Newsom. In light of California's ambitious goal to achieve carbon neutrality by 2045, Newsom’s administration had previously implemented measures to halt fracking permits and phase out oil extraction. However, in a surprising turn, he recently signed a bill allowing up to 2,000 new oil wells per year through 2036 in Kern County, which produces a significant portion of the state’s crude oil.
Furthermore, just this week, Newsom approved a bill permitting gas stations to sell gasoline blended with 15% ethanol, despite ongoing reviews by state air regulators. Proponents of this legislation argue that it could reduce prices at the pump by up to $0.20 per gallon and potentially save Californians around $2.7 billion annually. In contrast, the national average price for a gallon of regular gasoline currently rests at $3.152, highlighting the stark differences in fuel costs across the country.
