Why refinery closures could complicate the energy transition

Posted: June 16, 2026

The war in Iran has caused a spike in gasoline prices across the world. But costs have been particularly high in California. Since early February, the average price of gas in the U.S. has nearly doubled to $4.50 a gallon at the time of this writing. In California, it’s climbed from $4 to about $6.  But gas has been getting more expensive in California since long before the war started.  

One key factor driving that increased cost, oddly enough, is that California is using less gasoline. In response, several major refineries in the state closed this year. California's refining capacity is now 25% less than it was ten years ago. But while demand for gas is falling, these closures have reduced supply at an even faster pace. To supply enough refined crude to meet remaining demand, California began subsidizing its refined products with imports from other countries. So when the war closed the Strait of Hormuz, California was unexpectedly cut off from products like gasoline and jet fuel.  

Exacerbating the problem is that no pipeline connects the oil-rich Gulf Coast to California, which means the state can’t easily replace foreign products with refined products from elsewhere in the U.S. Without sufficient in-state production capacity, it is especially vulnerable to supply-chain interruptions—as the current painful gas prices make clear. 

New research on the economic forces driving this unusual predicament in California (i.e., prices rising even as overall demand declines) reveals how managing the energy transition may well require communities to continue supporting fossil fuel infrastructure even as more people turn to renewables.

The challenge of keeping assets online as they become less profitable

The impacts of sudden refinery closures in California could foreshadow the consequences of an energy transition in which assets go offline when they become less profitable, but before the customers they serve have found an adequate replacement.

 This is the focus of Emily Grubert’s research at the University of Notre Dame. Trained as a civil engineer and an environmental sociologist, she and her co-authors recently published a paper that investigates the dynamic between the decline of legacy fossil-fuel networks and how renewables ought to be deployed in their stead. Critically, Grubert argues that to make the energy transition happen fast and with less economic pain for vulnerable consumers, some fossil fuel infrastructure must stay online even as the market alone would force its closure. 

But figuring out how to keep refineries or coal-fired power plants online in the face of a shrinking user base is tricky. Fossil-fuel systems are immense, complex, and built to expand. These “networks-of-networks” operate under the assumption that demand for their products will grow over time. So, when the industry is confronted with less demand and a smaller number of customers, it becomes increasingly difficult to overcome fixed costs and remain profitable enough to stay online.

Grubert and her co-authors discuss the concept of a “minimum viable scale” for assets, which refers to the lowest level of demand an asset can accommodate before existing physical, financial, and managerial structures deteriorate. The consequences of dipping below this threshold are sudden: When facilities close unexpectedly, good alternative energy sources might not be ready to fill the gap, leaving consumers facing a lack of supply and sharply rising prices. 

For example, when many people in a community adopt electric cars, fewer gas stations are needed. But if you’re still driving a gas car and your neighborhood station goes away, you’ll have to drive farther and pay more. At first, it might be a few pennies and an extra block, but eventually, it will become dollars and miles. And that burden will fall most heavily on those who can’t afford a shiny new EV.

Why refineries go offline before the energy system is ready to replace them

In the case of refineries, things get especially complicated when demand for one product, like gasoline, goes down before another, like jet fuel. Since refineries are physically designed to produce a particular fraction of products, it’s expensive and difficult to rebuild infrastructure to accommodate a new product split. 

“It’s much harder to conceive of seeing jet fuel demand or petrochemical demand going down quite as fast [as gasoline],” Grubert said in conversation with David Roberts on Volts, “But the way that refineries are actually designed has these products in pretty specific ratios that are difficult to change.” 

The majority of refining capacity goes toward the production of gasoline in California—about 56%. Refineries become tangibly less profitable when the demand for their primary product decreases. This reduction in demand for certain products can also cause the cost of other products—like jet fuel—to go up. Sulfuric acid, refrigerants, and lubricants are all byproducts of refineries and could go up in price when they can no longer draft on the profitability of gas. 

In places like California, refineries are also hesitant to make large investments when they foresee a diminishing market. Every three to five years, refineries have to perform “turnarounds,” which are large maintenance overhauls that require a substantial financial commitment. At critical decision points like this, stakeholders weigh expected future profits against large investments, and when the future looks uncertain, refineries close. 

Similar dynamics play out with natural gas pipelines and coal-fired power plants. As demand for natural gas drops, existing pipelines, which are designed to transport large volumes of gas, will struggle to transport smaller flows. “You have these networks that depend on the notion that there’s going to be demand for gas. I make this pipeline a specific size because I know how much is going to be going through there,” Grubert said to Roberts.  

Another problem is that fewer people will have to cope with fixed costs, which could spark the departure of more customers. Suddenly, it could become impossible to cover the fixed costs from the few customers that remain, and the whole system could suddenly collapse.  

Coal has its own dynamics. When a coal-fired power plant closes, the mine that served it suddenly becomes less profitable and may close as well. But then another power plant that depended on that mine may be forced to close, too, potentially disrupting the supply of power more broadly. 

Most importantly, Grubert points out that little thought or research has been devoted to these issues. “There are almost certainly going to be situations where we have societally critical services that are not profitable,” Grubert said. “Without some mechanism for compelling operation, you cannot guarantee they’ll be available.” 

Resources

^{The Writing on the Wall: Why California Refineries Are Closing
Fossil Energy Minimum Viable Scale}