Is Gavin Newsom changing his tune with the oil industry?

Gov. Gavin Newsom seems to be taking a friendlier tone regarding the petroleum industry, as two refineries recently announced they would close down operations in California.

Earlier this week, Newsom sent a letter to California Energy Commission vice chair Siva Gunda, directing Gunda to “redouble the State’s efforts to work closely with refiners” to help ensure Californians have access to transportation fuels such as gasoline in the short and long term.

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And in what certainly seems like a departure from previous rhetoric about the oil industry, Newsom called on the commission to make sure “refiners continue to see the value in serving the California market, even as demand for fossil fuels continues its gradual decline over the coming decades.”

Newsom also called on Gunda to “reinforce the State’s openness to a collaborative relationship” with refiners.

The letter came just four days after Valero, one of the country’s major transportation fuels producers, told the commission it intended to “idle, restructure, or cease refining operations” at Valero’s refinery in Benicia.

The San Antonio-based company then followed up with an announcement this week that it will indeed shut down the refinery next year.

“California has been pursuing policies to move away from fossil fuels for the past 20 years, and the consequence of that is the regulatory and enforcement environment is the most stringent and difficult of anywhere else in North America,” Valero CEO Lane Riggs said Thursday during a conference call with financial analysts.

Valero also disclosed the company had recorded a $1.1 billion pre-tax impairment related to its California refineries.

Last October, another energy company — Phillips 66 — announced it will shut down its twin Southern California refinery facilities in Carson and Wilmington by the end of this year.

The Valero and Phillips 66 facilities combine to account for almost 18% of the state’s crude oil capacity, leading some fuel analysts to raise concerns that more refinery closures would tighten supplies of the specially blended gasoline that is sold to drivers in the Golden State.

Prior to the release of Newsom’s letter, first reported by Bloomberg News, tensions between Newsom and the oil industry have been escalating.

Newsom frequently called out oil companies when gasoline prices spiked to more than $6 a gallon in late summer and early fall of 2022 and 2023, accusing them of “lying and gouging Californians to line their own pockets”

In turn, the industry said the state’s high gasoline taxes and fees plus restrictions imposed by California policymakers like Newsom have, in the words of a Chevron executive, “made the state ‘uninvestable’ by reducing refiners’ incentive to invest the annual capital needed to maintain the fuel production capacity needed.”

At Newsom’s urging, in 2023 the California Legislature, which has a supermajority of Democrats, passed Senate Bill X1-2, which created the Division of Petroleum Market Oversight to monitor California’s oil and gasoline companies.

Among its provisions, the legislation also gave the California Energy Commission authority to penalize oil companies if they exceed a “maximum gross refining margin.” The specifics of what will trigger the penalty — the first of its kind in the U.S. — and when it will be enforced are still being worked out.

More recently, the Legislature passed and Newsom signed a bill requiring California refineries to maintain minimum amounts of gasoline inventories in the hopes of preventing price spikes. Failure to do so would result in civil penalties of at least $100,000 to a maximum of $1 million per day.

When Newsom signed each piece of legislation, he spoke at a podium with a sign that read, “Holding Big Oil Accountable.”

The governor frequently cites California’s progress in transitioning away from gasoline-powered cars and trucks. In September 2020, Newsom issued an executive order that 100% of in-state sales of new passenger cars and trucks will be zero-emission by 2035, citing the need to reduce air pollution from internal combustion engines.

In his letter to Gunda, Newsom said, “California will continue to lead the way in this transition, but it is imperative that we continue to ensure a safe, affordable and reliable supply of transportation fuels over the next two decades.”

The governor also directed Gunda to recommend, by July 1, “any changes in the State’s approach that are needed to ensure adequate supply during this transition.”

Asked if the letter reflects a more conciliatory approach to the oil industry, a spokesperson from the Governor’s Office in an email to the Union-Tribune said only, “The governor’s letter speaks for itself.”

Some fuel analysts say the letter may signify an effort to patch things up.

“I think it’s a positive development,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “Maybe the state, under duress of refineries closing down, is getting more serious … California doesn’t have to immediately do an about-face on all of its stances, but there needs to be a conversation between the two parties — refiners and the state — on how to accomplish goals and where they need to find commonality.”

“We have to see how it turns out,” said David Hackett, president of Stillwater Associates, a transportation energy consulting company in Irvine, “but we’re optimistic because it signals that maybe things will go in what we think is the correct direction, as far as protecting consumers is concerned.”

The American Petroleum Institute, the industry’s largest trade group with headquarters in Washington, D.C., had a much more blunt take.

“Gov. Newsom has built a career demonizing the U.S. oil and natural gas industry. Now he wants California refineries to stay open,” the group’s CEO, Mike Sommers, said on X. “Some ideas, Governor: Scrap your EV mandate, stop villainizing American energy workers, and end the costly refinery regulations YOU put in place.”

On the opposite end, Jamie Court, president of Los Angeles-based Consumer Watchdog, a longtime critic of the petroleum industry, took an equally pugnacious tone.

“Refiners are creating the conditions by which Californians are now paying $1.47 more gallon at the pump than U.S. motorists,” Court said in a news release. “Every dime over 70 cents more is what we call the ‘Golden State Gouge,’ (the) added profit for the four refiners that now control 90% of the refining in the state above what refiners are making in other states. If the government is to be blamed, it is for not acting decisively enough.”

As for Gunda’s reaction to Newsom’s letter, a spokesperson for the California Energy Commission said in an email the CEC “continues to be committed to working with stakeholders to explore options to ensure an affordable, reliable, and safe transportation fuel supply.”

Newsom is the final two years of his second and final term as governor and many political pundits say he has presidential ambitions. He recently launched his own podcast that has included interviews with conservative figures such as Charlie Kirk and Steve Bannon, leading to speculation that Newsom is pitching himself to a national audience as a centrist.

Was this recent letter an indication of that? Thad Kousser, political science professor at UC San Diego, isn’t so sure.

“He has extended a private olive branch to an industry that he’s really been publicly hammering over the last two years,” Kousser said, “and I think it’s because he recognizes that regardless of the underlying causes for the closures of these refineries, as a governor who has taken such a hard line against oil and gas companies, he may get the blame” if things go badly.

“This is a governor who began his political career by tacking towards the middle,” Kousser said. “So while it’s tempting to read any moderate or pragmatic position that he takes now as a turn away from his past, in fact, that’s who he’s been his whole career.”

There are 13 refineries in California, but five of them are very small. Eight major refineries account for about 96% of crude oil capacity in the state — and that figure includes the Valero refinery in Benicia and the Phillips 66 facilities in Carson and Wilmington.

As of 2024, 63.5% of oil supply to California refineries came from foreign sources, according to the CEC.

The Newsom administration maintains that California is merely part of a larger trend that has seen refineries across the country go through transitions, consolidations and closures, pointing to the shutdown of a large petroleum refinery in Houston (in the heart of the U.S. oil industry) by a company that will repurpose the 700-acre facility into a “profitable circular and low carbon solutions business.”

Republicans in Sacramento are less forgiving.

“Gavin Newsom sent a letter to the California Energy Commission, quietly backtracking on his war against ‘Big Oil,’” Assemblymember James Gallagher, R-Yuba City, said on his Facebook page. “Looks like it took several refinery closures and some of the highest gas prices in the nation for him to realize the damage he’s done.”

High gasoline prices have been a chronic headache for California drivers.

The average price for a gallon of regular in the Golden State stood at $4.797 on Friday, the highest of any state. The national average, according to AAA, was $3.164.