The odds were low. But even so, some Benicia city leaders hoped that California would emerge from the past week’s final lawmaking push for the year with a plan to keep Valero Energy Corp. from shuttering its Bay Area oil refinery next year.
Lawmakers announced big deals on electricity affordability, oil drilling and climate measures for Gov. Gavin Newsom to either reject or sign. But none dealt directly with a dramatic problem for Benicia: that its biggest taxpayer and employer would soon be abandoning its 900-acre gasoline-making facility on the outskirts of town.
“The silence is deafening,” Benicia City Manager Mario Giuliani said.
California has some of the highest gasoline prices in the country — about $1.47 per gallon higher than the national average as of Tuesday. State officials have been grappling with how to continue transitioning away from fossil fuels without making drivers who don’t have electric cars pay exorbitant gasoline prices.
Last year, Phillips 66 announced it would shutter its facilities in Los Angeles by the end of 2025.
Then in April, Valero alerted California energy regulators that the San Antonio-based company intended “to idle, restructure, or cease refining operations at Valero’s Benicia Refinery by the end of April 2026.”
State law requires refineries to notify the state of any operational changes that might disrupt fuel supplies — and Valero’s departure would certainly be disruptive. The facility produces roughly 8% of the state’s gasoline, a difficult commodity to replace because the state requires a special blend.
During an October earnings call with investors, Valero’s chief executive Lane Riggs discussed California’s “regulatory pressure on the industry” and foreshadowed the company’s announcement that would come six months later. He said that “all options are on the table” for its California operations and noted that the company had already “minimized” its capital spending in the state.
Valero did not immediately respond to a request for comment Tuesday.
But Riggs has previously acknowledged “the impact that this may have on our employees, business partners and community, and will continue to work with them through this period.”
Giuliani said Valero has hired a contractor to work on a redevelopment plan for the site.
Losing both Valero and Phillips 66 meant California stands to lose nearly 20% of its refining capacity. Only seven oil refineries would remain in the state, which requires a special low-carbon blend of gasoline that not all refineries can make.
The closures threaten to make California’s high gasoline prices even higher.
Estimates vary, but many experts put that increase between 5 cents and 10 cents per gallon. They warned that the closures would mean that any unplanned disruptions at other oil refineries — when production stops for repairs or emergencies like fires — could send gas pump prices soaring, albeit temporarily.
By July, state legislators were considering whether California could pay Valero between $80 million and $200 million to cover Benicia’s maintenance costs and stave off its closure. But those deliberations appear to have gone nowhere, Giuliani said.
“It seems there is now no path that remains for Valero to remain,” he said.
Daniel Barad, western states policy senior manager for the Union of Concerned Scientists, said subsidizing Valero’s refinery operations would require California to be prepared to spend millions more at other refineries too — a complicated commitment given that the state is still committed to transitioning away from fossil fuels.
“It’s important to keep gasoline prices stable as we phase out gasoline,” Barad said. “We have to do everything at the same time.”
Senate Bill 237 could boost the supply of crude oil to the Bay Area’s three refineries — Chevron in Richmond and PBF Energy’s Martinez Refining Co, in addition to Valero. The legislation proposes to increase oil drilling in California, which would potentially send more in-state crude oil for refineries and allow them to operate at higher capacities.
Barad said that is likely not enough to keep Valero open.
Benicia is now preparing to lose more than $10 million in revenue streams out of its $60 million general fund budget. Valero pays about $7.7 million in sales and property taxes to the city. The refinery is also the city’s largest water customer, spending about $3 million annually.
The city has already been dealing with the challenges from stagnant growth and an aging population, Giuliani said. The city of about 26,000 residents hasn’t grown much in the last 25 years.
Kari Birdseye, who serves on the Benicia City Council, said she’s heading up a task force working with local businesses that rely on Valero.
“A lot of local businesses have Valero as their only client — they make specific valves, specific ball bearings, customized equipment,” Birdseye said.
The city is now launching a process to determine which city programs to cut. City officials will compare costs and how many residents each program serves. Giuliani said they took Valero’s closure announcement seriously from the outset and didn’t expect the state to step in. Still, they were holding out hope.
“It’s going to be a significant and seismic shift in the city’s ability to provide services,” Giuliani said.
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