(The Center Square) – A Valero Energy refinery in the Bay Area that provides about 9% of California’s gasoline supply began shutting down at the end of January, earlier than some anticipated, with potential knock-on effects on gas and motor fuels prices in Nevada, Arizona and other western states, according to news reports.
A former manager at Valero Energy, Mike Aziza, said the San Antonio-based oil company started idling the Benicia, Calif. refinery on Jan. 31, and thermal imaging reports show it is not emitting heat, according to a report in the California Globe.
Californians paid the nation’s highest gas prices as of early Wednesday morning at $4.50 per gallon, according to the American Automobile Association. That’s above the national average of $2.92.
Drivers in neighboring states Nevada and Arizona, some of them supplied by gasoline produced at California’s refineries, paid the fifth and ninth highest fuel prices in the nation.
Philipps 66 closed its Los Angeles refinery in October. Now Valero has begun shutting down production at Benicia, potentially reducing California’s gasoline production by a combined 20% in less than a year’s time.
The closure of the two California refineries could cause prices to rise to $8.44 a gallon by the end of 2026, according to a study by University of Southern California professor Michael A. Mische published in April of last year, as the Center Square reported in September.
In early January, California Gov. Gavin Newsom said Valero confirmed it would continue to supply the state’s gasoline markets with imports as a phased shutdown began at the company’s 144,000-barrel-per-day Benicia refinery in February.
“This marked a constructive development from an earlier announcement that included the possibility of full closure and exit from the Northern California market in early 2026,” Newsom said on Jan. 6.
Newsom’s office said operations remain unchanged at Valero’s other refinery in California, a 135,000-barrel-per-day facility in Wilmington. Valero said the Wilmington refinery will “maintain normal operations.”
Valero said in a statement that it “remains committed to fulfilling its contractual supply obligations in the California market and anticipates importing additional gasoline volumes to the Bay Area in the near term.”
Benicia Mayor Steve Young said the refining facility will likely become a “tank farm” where Valero will continue to import, store, and distribute gasoline. The city anticipates losing annual tax revenues of approximately $7.7 million to $8 million — about 12% of its general fund, Young told KPIX CBS news.
Because California refineries provide approximately 86% of Nevada’s and one-third of Arizona’s motor fuel, these states are also highly vulnerable to significant price increases and supply disruptions.
University of Houston Energy Fellow Ed Hirs said the closure of the Benicia refinery is another step in California’s transition to cleaner fuels that pushes fossils fuels companies to relocate production outside the state. Oil refiner Union 76, Phillips 66 and Valero have all shut down refineries in the state in recent years, Hirs noted.
“In California, it is expensive to produce the oil. It’s difficult to transport the oil, and it’s increasingly more expensive to refine it,” said Hirs. “The refineries must operate under environmental restrictions that it doesn’t compensate anyone to rebuild, refurbish them, because in some cases because they are as much as a hundred years old and it would be expensive.”
Hirs said higher prices paid by California’s drivers will be borne disproportionately by the working poor, who need their vehicles to get to work and farm their lands. The costs of gasoline make up a large percentage of the expenditures of those with low incomes, and their personal finances are sensitive to higher gasoline prices, he said.
Refiners now supplying motor fuels in California will be able to raise their prices to match the higher prices that consumers will pay for gasoline imports, Hirs said.
Phillips 66 and midstream oil and gas company Kinder Morgan are considering a joint venture, called the Western Gateway Pipeline Project, that would pair a 1,300-mile-long pipeline running from Borger, Texas, to Phoenix with a reversed segment of the existing Santa Fe Pacific West system, which could deliver refined fuels to Southern California, according to Industrial Information Resources, an industry publication.
Brian Mandell, head of marketing and commercial operations at Phillips 66, said in a recent quarterly earnings call that his company will continue to import barrels into California by sea. But he added the Western Gateway project could serve the California market. “All our Mid-Continent refineries can make Arizona-grade gasoline and California-grade gasoline. So we see the pipeline as a great opportunity for California, for Arizona, for Nevada and for all the potential shippers.”
California may not reduce pollution overall by adopting policies that lead refiners to process oil outside the state and then import by pipeline, said Hirs. “Through the state’s policies, California isn’t reducing pollution much, they’re just outsourcing it to someplace else.”
California’s drivers pay the nation’s highest taxes and fees on gasoline, which amount to approximately $1.30 of each gallon purchased. This compares with 20 to 30 cents per gallon in most states in the South and Midwest.
