October 24, 2024 [Microsoft Start]- When Phillips 66 this week announced its plans to close its Los Angeles-area refinery in late 2025, many observers noted the announcement came just days after California Gov. Gavin Newsom signed a new law aimed at refineries.
The Houston-based oil giant’s decision, however, was “not related to the recent bill signing,” Phillips 66 spokesperson Al Ortiz wrote in an email. Rather, Ortiz cited the Los Angeles refinery’s low profitability compared to other assets in the company’s portfolio and “a shift from consumers in the state towards lower carbon energy sources.”
Approximately 600 employees and 300 contractors work at the Los Angeles refinery, according to Phillips 66’s Thursday announcement. It consists of two facilities that produce transportation fuels and fuel-grade petroleum coke and represents roughly 8% of California’s refining capacity.
“With the long-term sustainability of our Los Angeles Refinery uncertain and affected by market dynamics, we are working with leading land development firms to evaluate the future use of our unique and strategically located properties near the Port of Los Angeles,” CEO Mark Lashier said in the company’s statement.
Phillips 66 previously ceased operations at its Santa Maria refinery in 2023 as part of its plans to convert its San Francisco facility to a renewable diesel and sustainable aviation fuels plant. Ortiz pointed to the conversion as another example of the company positioning itself well in California.
“Overall, longer term projections in the state point to declining demand in crude products,” Ortiz wrote.
Newsom on Monday signed a law giving the state’s energy regulators the ability to require refineries to keep on hand a minimum level of fuel reserves in an effort to prevent gas price spikes. The law may have reinforced the need for Phillips 66 to evaluate the best uses of its assets, said Alan Gelder, vice president of refining, chemicals and oil markets at the energy consulting firm Wood Mackenzie.
That evaluation was likely already ongoing after Elliott Management, an activist investor, disclosed a $1 billion stake in the company last year, Gelder said. Thus, Phillips 66’s plans to shutter its Los Angeles refinery have probably been in development at the company for the last six to nine months, partly because Californians are shifting to electric vehicles, lowering the demand for fossil fuel-based products in the state, he said.
“This decision they made was probably going to happen anyway at some time in the future, but the signing of the law probably to a degree crystallized their decision,” Gelder said.
