Valero Mulls Shutdown of California Refinery, Books $1.1B Impairment

Valero Energy Corp. said it may end fuel production at its Benicia refinery northeast of San Francisco next year and is evaluating “strategic alternatives for its remaining operations in California”.

The decision comes amid regulatory pressure in the Democratic state. Rival Phillips 66 is working to shut down its Los Angeles refinery by the end of this year.

San Antonio, Texas-based refiner Valero said in an online statement it had notified the California Energy Commission of its intent to “idle, restructure, or cease refining operations at Valero’s Benicia Refinery by the end of April 2026”.

Valero added, “In connection with the evaluation of strategic alternatives for Valero’s operations in California, a combined pre-tax impairment charge of $1.1 billion was recorded for the Benicia and Wilmington refineries, and is expected to be treated as a special item and excluded from first quarter 2025 adjusted earnings”. The amount includes expected asset retirement obligations of $337 million as of the first quarter.

The Benicia refinery processes feedstocks into gasoline and diesel that meet California’s blending requirements. It has a throughput capacity of 170,000 barrels per day (bpd). It employs over 400 employees, according to information on Valero’s website.

“We understand the impact that this may have on our employees, business partners, and community, and will continue to work with them through this period”, said chair, chief executive and president Lane Riggs.

On October 16, 2024, Phillips 66 announced it would cease production at its Los Angeles refinery by the end of 2025, with chief executive Mark Lashier citing uncertainty from “market dynamics”.

The announcement came days after Governor Gavin Newsom signed into law his proposal requiring refineries to maintain minimum stockpiles, meant to prevent price spikes but which the industry said would on the contrary add costs.

The refinery can produce up to 85,000 bpd of gasoline and 65,000 bpd of distillates and meets California’s requirement of a 10 percent ethanol blending component, according to Phillips 66.

The looming refinery shutdowns come as the state barrels down toward achieving cleaner transport.

During previous president Joe Biden’s last days in office, California secured waivers from the Environmental Protection Agency for its Advanced Clean Cars II (ACCII) and Heavy-Duty Omnibus. “Under the Clean Air Act, California is afforded the ability to adopt emissions requirements independent from EPA’s regulations to meet its significant air quality challenges”, the EPA said December 18, 2024.

ACCII sets emission standards and raises sales of zero-emission vehicles for model years 2026-35 so that all new light-duty passenger cars, pick-up trucks and SUVs sold in California are zero-emission by 2035. ACCII builds on ACCI, adopted 2012 for model years 2015-25.

“By 2035, all those vehicles must be zero-emission, which includes the option to sell plug-in hybrid vehicles”, the California Air Resources Board (CARB) said separately at the time.

“The regulation does not ban fossil-fueled cars and pickup trucks; residents can drive existing internal combustion vehicles as long as they want”.

Under the Heavy-Duty Omnibus, manufacturers must curb emissions of nitrogen oxides, or smog-forming emissions, by 90 percent. The omnibus requires an overhaul of engine testing procedures and further extends engine warranties, CARB said.

Another regulation called Advanced Clean Trucks raises the share of medium- and heavy-duty zero-emission vehicles and near-zero emission vehicles in sales.

However, the three regulations now face a congressional challenge under the Trump administration. On February 14 the EPA said it would be “transmitting to Congress the Biden Administration’s rules granting waivers that allowed California to preempt federal car and truck standards promulgated by EPA and the U.S. Department of Transportation’s National Highway Traffic Safety Administration”.

To contact the author, email jov.onsat@rigzone.com