The Great Gasoline Decline Debate – Forecasting California’s Fuel Future

With the potential closure of two refineries in California, tightening West Coast fuels production, it is more critical than ever to pin down accurate assessments of likely future gasoline demand. Various industry and government agency projections offer differing perspectives concerning potential shortages. Stillwater estimates that gasoline demand in 2030 will be 13-15% below the level observed in 2024. The California Air Resources Board’s (CARB) 2022 Scoping Plan shows a Business as Usual forecast with a 21.5% reduction while the Scoping Plan shows a targeted 47% reduction by 2030. Many forecasts, including CARB’s aspirational Scoping Plan, overestimate the impact of zero-emission vehicle (ZEV) adoption and other gasoline-reduction scenarios. Taken together, these errant assumptions around gasoline demand destruction compound the pressing reality of refinery closures (i.e., gasoline production decline). Today we dig into the historic data and trends to parse out what a realistic future might look like.

What do historical data show?

Since 2000, gasoline prices in California have tripled, prompting Californians to seek out more fuel-efficient vehicles, leading to a 23.5% improvement in median vehicle fuel economy and the nation’s highest ZEV sales. These factors contributed to a reduction in gasoline consumption of 88-105 million gallons per year from 2008-2024 as shown in Figure 1. This period marks one of the steepest gasoline demand declines in history, even excluding the Covid dip.

Figure 1. Historic Gasoline Demand (2008-2024)Sources: California Board of Equalization and LCFS program data

But what does the future look like?

A key consideration in forecasting – especially for California, the world’s fourth-largest economy – is that past and future gasoline sales tend to follow a gradually shifting trend, with rare exceptions such as the COVID-19 pandemic. If future ZEV growth aligns with historical patterns, gasoline sales should continue declining at a pace consistent with the recent downward trajectory. Forecasts that deviate significantly from the historical trendline raise concerns. Stillwater’s 2025 forecast closely follows the recent 105-million-gallon annual decline, while some other demand forecasts predict a reduction more than four times steeper than historical trends. These disparities warrant careful examination to determine realistic expectations for future gasoline demand.

Figure 2 provides a detailed illustration of Stillwater’s future California gasoline demand projection. The black dashed line extends the trend observed in the last four years, reflecting the influence of state policies, consumer behavior, and increasing ZEV adoption. Stillwater’s forecasts align with this recent trajectory while the blue line shows Stillwater’s alternative case assuming full successful compliance with Advanced Clean Cars II (ACC2).[1]

Figure 2. Projected Gasoline DemandSources: LCFS program data (history) and Stillwater analysis (projections)

How does refinery capacity align with likely gasoline demand?

Gasoline demand is declining. California’s 2024 gasoline sales were down 15% from the 2004 peak, and with the continued trend, sales will be down 20% by 2026. By 2030, Stillwater expects California’s gasoline sales to decline by an additional 13-15% compared to 2024 levels.

But supply is also declining. In recent years, California lost 17% gasoline production from two gasoline-producing refineries (Phillips 66 Rodeo and Marathon Martinez), and the forthcoming loss of Phillips 66’s Wilmington refinery and Valero’s Benicia refinery would take an additional 12.5% of California’s gasoline supply offline beginning in 2026. Taken together, these refinery closures are likely to result in a gasoline supply shortfall.

(Note: The Golden State isn’t the only consumer of California’s declining gasoline supply. California refineries also supply one-third of Arizona’s gasoline and nearly 90% of Nevada’s gasoline, further complicating the supply/demand picture.)

To paint a clearer picture of the supply shortfall California is facing down, it helps to compare California refinery crude capacity with historical and projected gasoline sales. Figure 3 illustrates the percentage of California’s refinery capacity which is accounted for by historical and projected gasoline sales within the state. As can be seen, gasoline sales have historically hovered around 53% of crude capacity, suggesting market equilibrium. If demand exceeds 53% of refinery capacity, supply must be balanced with increased imports; and given the state’s limited import capability, this could create price volatility.

With the pending shutdowns of two more refineries in 2026, gasoline sales (demand) as a percent of refinery capacity is expected to spike much higher than the historical trend and will probably result in much higher gasoline prices. Historically, reduced supply has led to price increases and greater volatility in price fluctuations while increased supply (or decreased demand) have resulted in lower prices. For example, the 2020 Covid downturn in refinery crude utilization was associated with $1.00-per-gallon lower retail prices. The 2026 spike shown in Figure 3 can be expected to result in a similarly large increase in gasoline prices.

Figure 3. California Gasoline Demand as percent of California Refinery Crude CapacitySources: Stillwater Analysis of EIA California Crude Capacity vs CARB LCFS Gasoline Volumes

Will EV adoption save the day?

The impact of ZEV adoption on gasoline reduction remains relatively small. According to Stillwater’s projections, ZEVs will not significantly affect gasoline demand dynamics as much as fuel economy improvement in conventional vehicles. Compared to a 2004 baseline, ZEVs effectively displaced just 3.5% of gasoline demand in 2024; by 2026, they are projected to displace 4.9%, and by 2030 they are projected to displace 7.1%. By contrast, improvements to gasoline-powered fuel economy reduced gasoline demand by 24% in 2024 and are estimated to reduce gasoline demand 30% in 2026 and 41% in 2030 when compared to a 2004 baseline. Collectively, these anticipated gasoline reductions are significant contributors to California’s refinery closure announcements; unfortunately, these two gasoline demand reduction factors will not reduce gasoline demand in time to offset the two refineries’ anticipated closure by 2026 or even 2028.

Potential Solution

If the two refineries slated for closure do not plan to offset the resulting supply shortfall, the California government could step in by relaxing its stringent gasoline specifications. This would allow the sale of gasoline blends currently prohibited under state regulations and enable, for the first time in over 30 years, a larger number of refineries outside the state to supply compliant fuel. These specifications, introduced in the 1990s to accommodate older vehicle technologies, now offer diminishing environmental benefits relative to their cost – especially given the widespread adoption of significantly cleaner gasoline vehicles. A modest, pragmatic policy adjustment could effectively address the looming supply gap and help moderate potential increases in gasoline prices.

Conclusion

With the potential closure of two refineries tightening the state’s gasoline supply, precise and realistic forecasting of gasoline demand is crucial to understanding the broader economic impact. Many projections significantly overestimate the rate of gasoline decline. If these inflated forecasts shape state energy policy, they could lead to unintended economic consequences due to unrealistic expectations. Stillwater’s analysis suggests a more moderate decline in gasoline demand, tracking with recent history. Importantly, even with the state’s efforts to promote ZEV adoption, reductions in gasoline consumption attributable to ZEVs remain relatively minor, and ZEV adoption alone is unlikely to significantly soften the blow of the lost gasoline production over the near term. Stillwater’s analysis indicates a looming gasoline supply shortfall beginning between 2026 and 2028 that will require action from either the government or industry.

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This article has explored California’s supply crunch at a high level. If you are looking for a more complete picture, contact us to discuss our West Coast Supply/Demand outlook which is updated annually and accounts for regional flows, imports, and more!