Introduction
In 2024, California was the eighth-largest crude oil producer in the United States and also ranked third in crude oil refining capacity. Even so, California consistently has some of the highest gas and crude oil production costs in the country. These high prices are largely self-inflicted and result from California’s energy policies, which have made interstate trade nearly impossible and the production and refining of crude oil in-state very costly. Onerous emissions standards, higher taxes, a lack of pipeline connectivity, and unique fuel specifications have made California into an “energy island,” forcing all crude oil to be either imported by sea or developed within the state. With the ongoing exodus of both businesses and people from the Golden State, it would be in Sacramento’s best interest to strike down its misguided renewable energy mandate that is forcing California’s oil industry to shutter.
California’s Oil
California’s known crude oil reserves range in estimation because oil companies tend to only report on reserves that they are confident they may receive a permit to drill for and recover. This reluctance to report all findings, let alone pursue all possible leads, is a testament to how the unwelcoming business environment of California affects what should be one of the most productive oil industries not only in the country, but in the entire world. As of 2024, California is estimated to have 1.716 billion barrels of proven reserves, accounting for 3.1% of the country’s total. However, due to the lack of incentive to explore all potential leads, other estimates place the potential reserves far higher, upwards of 30 billion barrels, as reported by Californians for Energy and Science.
Much of California’s onshore oil production takes place in Kern County, the state’s major production hub of the greater San Joaquin Valley, where 80% to 90% of all surface drilling takes place. The San Joaquin Valley includes 95% of all Federal drilling in the state, which accounts for approximately 8% to 10% of California’s annual production total. Of the fields located in Kern County, which accounted for 65.7% of California’s oil production in 2018, the three largest are Midway-Sunset, which produced 12% of the region’s oil, Belridge-South, which also produced 12%, and Kern River, which produced 9.5%.
California produces crude oil both on and offshore, with a minor amount of drilling taking place off the coast. Twenty-three offshore facilities currently operate in California’s Pacific Offshore Continental Shelf (OCS) Region in Federal waters. One of these is a processing facility, while the other twenty-two, all owned by six companies, produce oil and gas. In California state waters, there are currently eleven active oil and gas leases still in operation; however, this is down significantly from the original sixty that were issued before the large oil spill of 1969 in Santa Barbara. This incident led to harsh legislation and misguided public opinion, which eventually led to the entirety of California state waters being placed off limits to new operations, beginning in 1994 (new leases are still offered, although in small quantities, in Federal waters).
When it comes to Federal offshore leasing, the Bureau of Ocean and Energy Management (BOEM) divides the Pacific region into four planning categories, including Washington-Oregon, Northern California, Central California, and Southern California. For more specific planning purposes, regions of California are listed as follows:
- Central California: Point Arena, Bodega, Ano Nuevo, and Santa Maria-Partington.
- Santa Barbara-Ventura: Santa Barbara-Ventura
- Inner Borderland: Los Angeles – Santa Monica – San Pedro, and Oceanside-Capistrano
- Outer Borderland: Santa Cruz-Santa Rosa, San Nicolas, and Cortez-Valero-Long Area
In BOEM’s 2021 Assessment of Oil and Gas Resources: Assessment of the Pacific Continental Shelf Region, estimates for the undiscovered economically recoverable resources (UERR) and estimates for undiscovered technically recoverable resources (UTRR) were both enormous and should have fueled a flurry of support for further exploration. The region’s UTRR, as indicated by the chart below, is estimated to be between 6.91 billion barrels of oil (Bbbl) and 14.20 Bbbl, with a mean of 10.20 Bbbl. Additionally, based on 2019 market conditions, which is what BOEM’s study used, the region’s UERR is 7.15 Bbbl, with a sizable portion being located in the Central California and Santa Barbara-Ventura provinces.
With such an astounding amount of oil, both discovered and statistically discoverable, policy decisions are clearly to blame for the fact that California has developed into a net importer of crude oil to satisfy its energy and refining needs.
California’s Refineries & Distribution Challenges
As of January 2025, there are thirteen refineries producing 1.6 million barrels per day, eleven of which produce 90% of California’s gas and diesel; in 2024, California also ranked third in refining capacity. With the announced closures of the Phillips 66 refinery by the end of Q4 2025 and Valero’s announcement that it will close operations at its Benicia refinery by April 2026, California is set to lose up to 20% of its refining capacity within a year.
The combination of California’s strict blending rules, the lack of pipeline connectivity into the state, and the Jones Act, make California dependent on three main sources of crude oil: California instate operations, which accounts for 23.3%, imports by sea from foreign sources, accounting for a sizable 63.5% of crude oil, and Alaska, which provides California with 13.3% of its crude oil. The chart below outlines which countries provided California with crude oil in 2024:
A hostile business environment and onerous regulations have caused oil majors to rethink their plans of staying in California. With the announced closures of refineries, which account for a sizable percentage of the State’s overall refining capacity, pressure on those who remain will increase, quite possibly to a point of a forced market exit.
Conclusion
The lack of pipeline infrastructure has turned an oil-rich California into an energy island. California has great potential to be an energy champion through the provision of affordable crude oil to its residents and to other states and countries. Instead, political influence in Sacramento has made it extremely difficult to start any new drilling and refining operations, even though, ironically, the strict regulations have made it so that the 536,770 people employed by the oil industry — 2.1% of California’s workforce in 2022 — produce and refine crude oil cleaner than most other operations in the world. With the right leadership and policy initiatives, California has the potential to get off its energy island and become a true global energy competitor.
