SACRAMENTO, California — Big Oil wields immense power in California politics, and has been a thorn in Gov. Gavin Newsom’s side for years.

Now, there’s a crack in the coalition’s unified front. That could have major ramifications for the future of oil in the state.

In August, Phillips 66, a behemoth international energy firm and one of the most powerful players in California’s oil industry, announced plans for a first-ever pipeline to carry gasoline and other refined fuels into California.

The new project has the potential to loosen the iron grip that California’s major oil refiners have on the state’s fuel market by establishing a new source of gasoline for a state that has, for decades, relied on local producers. The proposal is only the latest example of how Phillips 66 is charting its own path.

In December of last year, the company idled its last remaining California refinery. In January, it left the Western States Petroleum Association, the powerful oil industry lobbying group that frequently pushes the state to swat away environmental regulations and adopt business-friendly policies. The company also started pushing last year for California to boost production of renewable jet fuel, which is made without petroleum.

The other oil companies in WSPA continue to advocate for more traditional policies, doubling down on in-state oil drilling and refining. But now, Phillips 66 is embracing a future vision of California where the state relies on a more diverse fuel supply system — a vision that includes bringing in gasoline from other states, and producing fuels from plant and animal-based oils.

“As our California business has evolved, our policy priorities have evolved too,” Phillips 66 spokesperson Stef Adams said in a statement regarding its departure from WSPA. Jeremy Martin, director of fuels policy for the Union of Concerned Scientists, put it more bluntly. “Clearly, Phillips 66 doesn’t think WSPA is acting in their interest,” Martin said.

This break with tradition highlights the fact that, despite the propensity of politicians and environmentalists to speak about California’s fossil fuel industry in monolithic terms, the state’s oil companies are, in reality, fierce competitors, though they rarely bash each other publicly. And they’ve been generally aligned in their desire to make it cheaper to drill and refine oil in the state.

Phillips 66’s success or failure in forging a new path will help determine the direction of California’s energy industry in the coming years.

Phillips 66 has spent the last several years striking out on its own, which has sometimes put it in direct conflict with other oil companies.

At the beginning of 2020, the massive energy company owned refineries and projects across the country and abroad. This included two of California’s major oil refineries.

In August 2020, the company announced it intended to reconfigure its San Francisco-area refinery in Rodeo to use cooking oil, fats, greases and soybean oils to produce renewable diesel, renewable gasoline and sustainable jet fuel. The company boasted it would be the world’s largest facility of its kind.

Against the backdrop of the Low Carbon Fuel Standard, a California environmental program set up to incentivize the production of lower-emission-producing fuels, the company’s then-CEO Greg Garland said that the move would “support demand for renewable fuels and help California meet its low carbon objectives.”In 2024, Phillips 66 followed through, ending its use of petroleum at the refinery. That put the company in line with California’s general ethos, no small achievement in a state with a long history of fuel industry antagonism.

By 2026, California regulators were casting these renewable fuels as essential to one of the state’s most ambitious climate goals — to reach 100% carbon neutrality by 2045. “The state must pursue strategies such as alternative jet fuels to reduce [greenhouse gas] emissions and provide non-fossil alternatives to meet jet fuel demand,” the California Air Resources Board and California Energy Commission wrote in their draft transportation fuels transition plan in May.

But despite support from state officials and the growing popularity of renewable diesel in the commercial transportation sector, Phillips 66’s Rodeo facility has reported hundreds of millions in losses since becoming fully operational. (It reported its first profitable quarter this summer.) Those losses drove the company to lobby for a tax credit that would let fuel producers reduce their diesel tax payments in exchange for refining more non-petroleum jet fuel, a concept Newsom’s finance officials have framed as a boon for the burgeoning clean aviation sector.

The plan drew opposition from industry groups like the California Fuels & Convenience Alliance, which represents gas station operators, that argued that the tax credit would only benefit Phillips 66 and isn’t needed after the Rodeo facility reported more than $500 million in profit between April and June.

While WSPA hasn’t officially lodged opposition against the proposal, the association has also made it clear it worries the move could come at the expense of the state’s oil producers. The oil coalition’s top lobbyist urged caution on the plan during a March budget hearing.

“While incentivizing a fuel that does not yet have a market, you’re potentially going to lose more refineries,” said Zach Leary, WSPA’s chief California lobbyist. “We believe that the state and the legislature should be focused on preserving and protecting the remaining petroleum refineries that you have left.”Assemblymember Anamarie Ávila Farías, a moderate Democrat who represents the community surrounding the Rodeo refinery, said she has tried to communicate to WSPA that her championing of the tax credit does not mean she is any less committed to backing efforts to support petroleum refineries around the state.

“I think [WSPA] was coming from an environment where it’s been anti-industry for several years, and to see someone like myself championing renewable biofuel, sustainable aviation was like kind of like, a parent syndrome where you see one kid get something and they didn’t,” Ávila Farías said. She said she was attempting to send the message, “Let’s not fight within the energy spaces because we know the solution is multi-pronged, it’s not one or the other, and I hope that resonated with them.”

That tax credit ultimately did not come up for a final vote this legislative session, despite Newsom’s support. But it exemplifies the type of oil industry infighting that could become more common as companies’ priorities diverge, putting them on different sides of the negotiating table on issues like renewable fuel incentives and in-state oil drilling.

The Western Gateway pipeline proposal, a Phillips 66 collaboration with energy companies Kinder Morgan and HF Sinclair, has similarly set Phillips 66 at odds with other California oil companies. That’s because California has historically been considered a fuel island. The state uses its own unique, emissions-reducing blend of gasoline, the vast majority of which was traditionally refined in-state, giving the handful of companies that owned California refineries significant power in the fuel market.

The proposed Western Gateway pipeline would carry fuel from refineries in Illinois and Texas to the Los Angeles region, deflating the market share of in-state oil refiners.

While Leary, the WSPA lobbyist, declined to comment on the project during a June Senate hearing, he made it clear that the state’s refiners are concerned about outside competition.

“Importers have an advantage in this market because of the policies and regulations that our refineries have to bear,” Leary said, alluding to the costs California refineries shoulder due to the state’s carbon market. “If we’re trying to preserve and protect the remaining refineries, we have to know the impacts of issues going forward.”Phillips 66, meanwhile, is jumping on the opportunity that the reduced number of refineries in California is creating. It has already begun shipping gasoline from its Ferndale Refinery in Washington to its marine terminal in Los Angeles to help meet the state’s fuel demand.

“As conventional refining capacity in the state changes, options to reliably supply California markets will matter more than ever,” Mark Hughes, Phillips 66 vice president of commercial, said in a statement.

Now, with its pipeline proposal, the company thinks there’s a strong case for the state to embrace the new imported fuels it’s offering.

“A policy framework that preserves multiple supply options can help reduce volatility and improve resilience while the market continues to evolve,” Suresh Vaidyanathan, Phillips 66 vice president of aviation and renewable fuels, said in a statement. There’s early signs that California energy regulators see things similarly.

Siva Gunda, the CEC vice chair who has led the Newsom administration’s work on fuel supplies, said in an interview that as in-state refining contracts, it’s important for California to expand where its fuel supply is coming from. Pipelines have some significant advantages over marine shipments, including eliminating emissions from ships at the ports, he said. If Phillips 66 and its allies do set up the first ever gasoline pipeline into California, “that would further improve the options for the state,” Gunda said, adding that he wants to see a “diverse portfolio” and that a new pipeline would “not mean that we are moving past the refineries.”

Meanwhile, in an ironic twist, some oil industry critics have become boosters of the pipeline proposal. That’s because they see it as an opportunity to reduce California’s high gas prices, which oil companies have used to successfully lobby for favorable policies they promise will ease cost pressures, and a key step toward eventually phasing out fossil fuels altogether.

After all, if California gasoline demand continues to fall, there may come a time when the market can’t support refineries, but some drivers still need gasoline. “That pipeline is what’s going to break the oligopoly on the market,” said Jamie Court, president of advocacy group Consumer Watchdog. “[It will] give us the ability to actually transition [away from fossil fuels] more smoothly.”Through various policies, the Newsom administration has set California on a path that would largely eliminate fossil fuels over the next 20 years, radically reshaping the state’s oil industry.

For now, most of the large oil companies operating in California are fighting environmentalist pushes to shrink their industry. But Phillips 66’s decision to deviate from the traditional path could set an example, according to Ryan Cummings, an economist with the Stanford Institute for Economic Policy Research.

“Other firms are definitely going to watch them and question, ‘Okay, is this better for us than having to maintain these refineries?’”Cummings said. “Maybe we reevaluate too.”