Ethanol Blog

California is in a bind.

The state could lose up to 17% of its refining capacity starting this year.

As of the beginning of May, companies announced plans to close production at three refineries.

Valero announced on April 16 that it would either close or repurpose a refinery near San Francisco next spring and is considering the same for a refinery in Los Angeles. Phillips 66 announced at the end of last year it will be closing a refinery in Los Angeles near the end of 2025.

Unless California regulators on the Air Resources Board and other agencies decide in some way to entice more refining companies to build or stay in the state, the price of gasoline will continue to rise.

Don't expect the state to let off the carbon-reduction pedal but they're thinking about it, and the case for importing increasing amounts of ethanol into California is becoming stronger.

California's pump prices always seem to be some of the nation's highest and a recent study by the University of Southern California predicts that by 2026, drivers there could see $8.43 a gallon from refineries closing, https://files.constantcontact.com/….

State officials have placed bets on the future without fossil fuels and it's now coming back to bite.

E85 OPEN DOOR

California also has stepped up its usage of E85 in recent years, an 85% blend of gasoline that can be used only in flexible-fuel vehicles, in response to demand for fuel that fits the state's low-carbon fuel standard.

Right now, E85 accounts for 10% to 15% of the total volumes of fuel awarded credits through the LCFS.

Growth Energy said in April 2025 that for the first time California logged E85 sales above 110 million gallons for two consecutive years, hitting 114.7 million gallons in 2024.

It would be naive to believe E85 could outright replace lost gasoline gallons.

E85 has about 27% less energy than gasoline and California regulators are much keener on making all vehicles in the state hydrogen or electric powered.

There isn't a massive push toward flexible-fuel vehicles in the state -- something that could change when consumers feel increasing pain at the pump.

PUSHING ETHANOL

Jeff Wilkerson, manager of government policy and regulatory affairs at Pearson Fuels based in California, told DTN the state continues to move toward allowing E15 to be sold, as well, via the budget put forward by Democratic Gov. Gavin Newsom and a standalone bill in the California Legislature, AB30.

California is the only state where E15 sales are not allowed.

Newsom announced he would not seek reelection in 2026, so maybe taking dramatic steps to resolve the situation including expansion of E85 seems possible.

Pearson Fuels has been a major proponent of E85 in California and continues to make that push.

"The state is in quite a jam," Wilkerson said.

"With two more refineries closing, however, E15 probably doesn't do enough to ward off significant price spikes. We've also been pushing hard for the allowance of E85 conversion kit technology, which is allowed in 49 other states. The CARB regulations around it are onerous."

Carbon reduction is king in California.

Yet the announced refinery closures even garnered Newsom's attention.

In April, he called on the California Energy Commission to work with refiners and to recommend changes in the state to make sure there's enough gasoline supply, according to Argus Media.

Part of that discussion includes perhaps requiring California refineries to maintain minimum inventory levels.

If you're an ethanol opportunist, now seems like perfect timing to impress upon Newsom and company the need to step up imports into the state.

The move away from electric vehicles by the Trump administration seems to be affecting sales in California -- this despite the influence of the LCFS and the political bent there against fossil fuels.

Wilkerson said the commission is supposed to release first-quarter EV adoption numbers soon.

"I anticipate they will be bad," he said.

Room to grow E85 is immense in California but attitudes that ethanol may not be green enough surely weigh on future growth.

According to U.S. Department of Energy data, 4% (or about 1.3 million vehicles) of the California vehicle fleet is flexible-fuel vehicles with EVs close behind at 3%. Gasoline vehicles still make up 85% of the state's fleet at about 31 million vehicles.

So, short of stepping up gasoline imports or building new refineries, what is California to do and how could ethanol and other biofuels cash in?

Building more refineries in the state is "out of the question," Wilkerson said.

"This nightmare likely falls to the next governor to address," he said.

"The state is very likely talking with existing refineries to keep them around. The minimum-supply mechanism is interesting because they have data to support its role in limiting price spikes. But there will soon only be seven refineries capable of making CARBOB (California reformulated gasoline blend stock for oxygenate blending) here -- split between northern and southern California.

"This is largely why we're so bullish on E85. We do best when gasoline is expensive and even better when prices spike. I think the state will have to lean heavily on E85 but doesn't understand that yet. It (the state) probably largely underestimates just how much of a cliff it's on. The real challenge out here has been convincing them to take the win -- lower fuel costs, much cleaner fuel -- but they get so hung up on it not being an EV or zero emissions.

"The last few months should be a wake-up call that EV adoption isn't a given and they need to find carbon reductions and gasoline substitutes wherever possible."

Todd Neeley can be reached at todd.neeley@dtn.com

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