Valero Energy Corp is significantly scaling back its operations in California, announcing a $1.1 billion pre-tax impairment related to its refineries in the state. The company has also notified California regulators of its intention to permanently shut down or restructure its San Francisco Bay Area refinery in Benicia by the end of April 2026.

The decision underscores the growing challenges faced by refiners operating in California, the largest gasoline market in the United States. Heightened regulatory scrutiny, increasing compliance costs associated with the state's ambitious emissions targets, and proposed refinery transparency rules are cited as key factors influencing long-term investment decisions.

The Benicia refinery, a significant player in the state's fuel supply chain, boasts a throughput capacity of 145,000 barrels per day of crude oil, which it converts into essential motor fuels. The potential closure raises concerns about the economic impact on the local community of Benicia in Solano County, where the facility employs approximately 400 workers.

"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," stated Lane Riggs, Chief Executive Officer of Valero, based in San Antonio.

Adding to the uncertainty, Valero also revealed that it is actively evaluating strategic options for its remaining California asset, the 91,300 barrels-per-day refinery located in the Los Angeles area.

The number of crude oil refineries in California has been steadily declining, with six plants having ceased operations since 2008. Companies have frequently pointed to the increasing regulatory burden, including California's plan to ban the sale of gasoline-powered vehicles by 2035, as a deterrent to investment. Notably, two of the closed refineries have transitioned to producing renewable diesel, reflecting a shift towards cleaner energy alternatives.

Valero's announcement follows a similar move by competitor Phillips 66, which stated in October of the previous year its intention to shutter its 139,000 bpd Los Angeles refinery within a year. That decision came shortly after Governor Gavin Newsom signed a state law mandating refineries to maintain minimum fuel stockpiles to mitigate price volatility.

Gasoline prices in California are notoriously high compared to the rest of the United States, largely due to the state's reliance on West Coast refineries and imports from Asia or the Middle East, coupled with the absence of pipeline connections to major refining hubs in the Gulf Coast or Midwest.