Announcement of Closure

Valero Energy Corporation has declared its intention to cease operations at its oil refinery located in Benicia, California, by April 2026. The company has formally notified the California Energy Commission regarding its plans to idle, restructure, or shut down the facility, which typically processes an average of 145,000 barrels of oil per day.

Impact on California’s Gasoline Production

The closure of the Benicia refinery is anticipated to diminish California’s gasoline production capabilities by nearly 9%, significantly affecting the state’s fuel supply and the livelihoods of over 400 employees at the facility. This decision underlines the increasing difficulties refiners are facing in the state, primarily due to stringent regulatory measures aimed at meeting emissions targets and the transition to renewable energy sources.

Recent Industry Trends

This refinery closure marks the second such announcement in recent months; Phillips 66 revealed plans to close its own refinery in Los Angeles in October 2024. The cumulative effect of these closures reflects an ongoing trend of declining refinery operations in California, with six facilities ceasing operations since 2008. Many of these have shifted focus from traditional petroleum products to renewable alternatives, capitalizing on state subsidies.

According to the Energy Information Administration, U.S. refinery capacity is expected to decline by approximately 3% by the end of 2025, influenced by closures such as those of Valero and Phillips 66.

Financial Implications for Valero

Valero has reported a substantial pre-tax impairment charge of $1.1 billion related to its Californian operations, including both the Benicia and Wilmington refineries. The expected asset retirement obligations will total approximately $337 million as of March 31, 2025, and this financial setback will be excluded from its adjusted earnings report in the first quarter of 2025.

State Response and Commentary

In reaction to these developments, Assembly Republican Leader James Gallagher criticized the state’s regulatory framework, asserting, “Once again, Californians are paying the price for Newsom’s incompetence…” He warned of potential job losses and rising gas prices unless regulatory policies are re-evaluated.

Conversely, Governor Gavin Newsom has expressed a commitment to collaborate with refineries. He has instructed the California Energy Commission to work with oil producers to uphold in-state fuel production amid the evolving energy landscape, emphasizing the necessity of maintaining efficient fuel supply while pursuing climate goals.

Gas Prices and Regulatory Environment

Currently, California residents experience the highest gasoline prices in the nation, with an average of $4.82 per gallon, which is 52% higher than the national average of $3.17. This disparity is attributed to a combination of the state’s high taxes, regulatory fees, and unique fuel blends, rather than price gouging as suggested by state officials.

Over the last several decades, California’s oil production has been on a downward trajectory, contrasting sharply with states like Texas and New Mexico, which have seen increases. Governor Newsom’s administration has enforced several laws that restrict oil production and refining, including a ban on gasoline-powered vehicle sales by 2035 and limitations on drilling near residential areas.

Legislative Actions

In a bold move, Newsom’s administration has also initiated legal actions against oil companies for alleged misinformation on climate-related matters, leading to new legislative measures that hold refiners accountable for price setting in California. Bills such as SB X1-2 and AB X2-1 have been passed to establish stricter profit margin regulations and reporting requirements, respectively.