The Impact of Phillips 66 and Valero Refinery Closures in California
Valero Energy Corporation has announced plans to cease, idle, or restructure operations at its Benicia refinery by April 2026, following Phillips 66's earlier announcement to shut down its Los Angeles facility by October 2025. These closures represent significant shifts in California's refining capacity and will have far-reaching implications for the state's fuel supply, economy, and local communities. The announcements come amid growing tensions between California's regulatory environment and the petroleum industry's operational viability in the state.
Overview of Refinery Closures
Valero Refining Company notified the California Energy Commission on April 16, 2025, of its "current intent to idle, restructure, or cease refining operations" at its Benicia facility by the end of April 2026[1]. This announcement follows Phillips 66's decision last year to permanently close its 139,000 barrels per day (b/d) Los Angeles refinery by October 2025[4].
The Benicia refinery, located in the northeastern part of San Francisco Bay, currently processes approximately 145,000 barrels of crude oil daily into motor fuels, including gasoline, diesel, and jet fuel[1]. The facility has been operating in Benicia for 25 years and employs around 400 workers[2].
Valero is also evaluating "strategic alternatives" for its remaining California operations, including its Wilmington refinery near Los Angeles, which has a processing capacity of 91,300 barrels per day[3]. In connection with these evaluations, Valero has recorded a $1.1 billion pre-tax impairment charge for both refineries[3].
Causes of Refinery Closures
Regulatory Pressures
Both companies have cited California's strict regulatory environment as a primary factor in their decisions. California has implemented increasingly stringent environmental regulations that have created operational challenges for refineries[3]:
Governor Gavin Newsom signed two laws in 2024 (SB X1-2 and AB X2-1) that require refiners to maintain minimum stocks of gasoline and gasoline blending components[4].
These laws also authorize the California Energy Commission to determine an "acceptable refining margin" and penalize companies that exceed it[4].
New regulations require refiners to submit "resupply plans" 120 days before planned maintenance, which must be approved by the state, with potential penalties of $100,000-$1 million per day for non-compliance[4].
Local Regulations and Penalties
Beyond state-level regulations, local measures have added to the refineries' operational challenges:
The city of Benicia recently approved a safety ordinance for industrial facilities handling hazardous materials, which included new air quality monitoring programs specifically affecting the Valero refinery[4].
In October 2024, California air regulators levied an $82 million fine against Valero for emissions violations at the Benicia refinery—the largest penalty ever assessed by the Bay Area Air District[2].
Economic Factors
The companies have also cited economic considerations in their decisions:
Valero CEO Lane Riggs had previously indicated that west coast refinery closures were likely due to the high cost of doing business in California[4].
The state's ambitious emissions goals, including the initiative to prohibit the sale of gasoline-powered vehicles by 2035, have created uncertainty about long-term demand[3].
Economic Impact on California
Fuel Supply Reduction
The closures will significantly reduce California's refining capacity:
After these closures, California will have only seven remaining in-state refineries capable of producing the state's uniquely formulated gasoline—a precarious situation for a state with nearly 40 million residents[8].
Since the 1980s, 29 refineries in California have been shut or integrated with other refineries that eventually closed or converted to renewable fuels production[4].
The Phillips 66 Los Angeles refinery closure will eliminate 8% of the state's refining capacity[7].
Fuel Price Implications
California already has some of the highest gasoline prices in the nation, and these closures are expected to exacerbate the situation:
Local oil producer Chad Hathaway has warned that gas prices could potentially rise to between $8 and $10 per gallon if there's a fuel shortage combined with rising oil prices[5].
California's dependence on West Coast refineries or imports from Asia and the Middle East contributes to higher prices, as the state lacks pipelines connecting it to refining hubs in the Gulf Coast or Midwest[3].
Impact on Local Communities
Employment Effects
The closures will have significant employment impacts:
The Valero Benicia refinery employs approximately 400 workers whose jobs are now at risk[2].
The Phillips 66 closure affects 600 employees and 300 contract workers[7].
Chevron, which is relocating its headquarters from California to Texas, is laying off 600 California workers[7].
Municipal Revenue Loss
Local governments will experience substantial revenue losses:
Valero contributes about $10 million annually to Benicia's revenue, representing approximately 10% of the city's general fund budget[2].
Benicia Mayor Steve Young has indicated that the city will need to "adjust accordingly," potentially reducing spending and expenditures to compensate for the lost revenue[2].
The mayor also noted that the city had no prior warning of the closure, although there had been signs that "Valero's time in the city was coming to an end"[2].
Broader Industry Trends in California
Industry Exodus
The refinery closures are part of a broader trend of energy companies reducing their presence in California:
Chevron, a long-time California-based oil major, is relocating its headquarters to Houston, Texas, citing what it describes as a "hostile regulatory environment" in its home state[4].
Since 2008, six refineries have ceased operations in California, with two of those facilities shifting to renewable diesel production[3].
Industry representatives and Republican lawmakers argue that these departures reflect California's increasingly aggressive energy policies[8].
Supply Chain Challenges
The closures create challenges beyond just retail fuel prices:
Rising fuel prices and supply shortages impact the cost of transporting goods throughout the supply chain, potentially affecting food prices and other consumer goods[7].
Local oil producers in California, particularly in Kern County (which produces 70% of the state's oil and gas), may face difficulties selling their crude oil with fewer refineries operating in-state[5].
The Regulatory Debate
The refinery closures have intensified debates about California's energy policies:
Industry and Opposition Perspective
Some lawmakers and industry representatives argue that the state's regulations have gone too far:
Senate Minority Leader Brian W. Jones (R-San Diego) has warned that Californians should "brace for even higher gas prices, fuel shortages, job losses, and rising costs" as a result of what he calls "radical energy policies"[7].
A study by Michael Mische with the USC Marshall School of Business concluded that "California's high gasoline prices and supply dilemmas are, by design, engineering or serendipitously, largely self-inflicted, and the result of directed policies and a litany of regulations, taxes, fees, and costs"[7].
Administration Perspective
Governor Newsom's administration has taken a different view of the industry's challenges:
The governor has claimed that high gas prices are not caused by state taxes but by price gouging by the oil industry, and he signed a gas price gouging law in May 2024[8].
The state has been pushing toward renewable energy sources and electric vehicles as part of its climate strategy, which includes phasing out gasoline-powered vehicles by 2035[3].
Conclusion
The closure of Valero's Benicia refinery and Phillips 66's Los Angeles facility represents a significant shift in California's energy landscape with far-reaching implications. The reductions in refining capacity will likely lead to higher fuel prices, job losses, and municipal budget challenges. These closures highlight the tension between California's aggressive climate policies and the petroleum industry's operational and economic realities.
As California continues its transition toward renewable energy, these refinery closures underscore the challenges of balancing environmental goals with economic impacts, energy security, and consumer costs. The state now faces the difficult task of managing this transition while addressing the immediate consequences for workers, communities, and consumers who will be directly affected by these industry changes.
Sources
[1] Valero announces possible closure of its Benicia refinery https://www.sfchronicle.com/bayarea/article/benicia-refinery-plan-close-20279055.php
[2] Valero plans to shut down Benicia refinery by next year https://www.nbcbayarea.com/news/local/valero-shut-down-benicia-refinery/3846366/
[3] Valero books $1.1 billion impairment, may idle California refinery https://finance.yahoo.com/news/valero-books-1-1-billion-004830729.html
[4] Valero Benicia refinery closure latest Calif challenge - Argus Media https://www.argusmedia.com/es/news-and-insights/latest-market-news/2679266-valero-benicia-refinery-closure-latest-calif-challenge
[5] Valero set to close Benicia refinery at the end of April https://www.turnto23.com/news/in-your-neighborhood/bakersfield/valero-set-to-close-benicia-refinery-at-the-end-of-april
[6] Valero Announces Notice to the California Energy Commission ... https://investorvalero.com/news/news-details/2025/Valero-Announces-Notice-to-the-California-Energy-Commission-Regarding-its-Benicia-California-Refinery/default.aspx
[7] Senate Minority Leader Jones Warns Californians to Brace for ... https://sr40.senate.ca.gov/content/senate-minority-leader-jones-warns-californians-brace-impact-valero-plans-close-benicia
[8] Valero Announces it Will Shut Down Benicia Refinery April 2026 https://californiaglobe.com/fl/valero-announces-it-will-shut-down-benicia-refinery-april-2026/
[9] Ashley Zavala - X https://x.com/ZavalaA/status/1912558353475334580
[10] Valero books $1.1 bln impairment, may idle California refinery https://www.reuters.com/business/energy/valero-books-11-bln-impairment-may-idle-california-refinery-2025-04-17/
[11] Ryan Cummings on X https://x.com/weakinstrument/status/1912524552514781411
[12] Valero to shut Benicia, California refinery https://www.argusmedia.com/en/news-and-insights/latest-market-news/2679085-valero-to-shut-benicia-california-refinery
[13] Valero plans to close Benicia refinery, reviewing California operations https://www.abc10.com/article/news/local/valero-oil-refinery-benicia-california/103-73f52963-a69b-4c91-9741-c840a0d20c92
[14] Valero announces closure of Benicia refinery by next year, citing CA ... https://www.youtube.com/watch?v=9a1z1gbI8pA
[15] This Bay Area refinery will close by next year https://www.ktvu.com/news/bay-area-refinery-is-making-plans-close-next-year
[16] Valero Benicia refinery closure latest Calif challenge https://www.argusmedia.com/news-and-insights/latest-market-news/2679266-valero-benicia-refinery-closure-latest-calif-challenge
[17] Valero set to close Benicia refinery at the end of April - Yahoo https://www.yahoo.com/news/valero-set-close-benicia-refinery-003854248.html
[18] Oil Giant Valero Looks to Shutter Troubled Bay Area Refinery. It’s ‘a Big Surprise’ https://www.kqed.org/news/12036242/oil-giant-valero-announces-plans-to-shutter-troubled-benicia-refinery
[19] Valero considers possible closure of Benicia refinery in 2026 https://www.cbsnews.com/sanfrancisco/news/valero-benicia-oil-refinery-2026-possible-closure-shutdown/
[20] Valero Benicia Refinery to close by April 2026 as companies face increased oversight in California https://abc7news.com/post/valero-refinery-benicia-close-april-2026-companies-face-increased-oversight-california/16185632/