Valero Latest to Mull Refinery Presence in California

Increased regulations on the refining industry may force some operators to rethink their position in California, the head of Valero Energy Corporation (NYSE:VLO ) (San Antonio, Texas) said last week.

California Governor Gavin Newsom earlier this month signed legislation, AGX2-1, that mandates refiners maintain fuel storage levels to avoid any supply-side issues that would lead to price spikes at the consumer level. The measure authorized the state energy commission to develop, regulate and enforce storage requirements for in-state refiners.

Speaking during a third-quarter earnings call, Lane Riggs, the chief executive officer at Valero, said the company is reconsidering its options for two of its California refineries because of the new legislation.

"Clearly the California regulatory environment is putting pressure on operators out there and how they might think about going forward with their operations," he was quoted by the Reuters news service as saying.

Valero operates the Benicia refinery with a processing capacity of 144,000 barrels per day (BBL/d) and the Wilmington refinery with 80,000 BBL/d in throughput, as well as two asphalt refineries with a combined crude capacity of 19,000 BBL/d. Subscribers to Industrial Info's Global Market Intelligence (GMI) Petroleum Refinery Plant Database can click here for the plant profiles.

The comments from Riggs followed a decision from Phillips 66 to close two of its refineries in the Los Angeles area: Los Angeles-Carson and Los Angeles-Wilmington. The two plants have a combined capacity of 133,000 barrels per day. Subscribers can click here for the plant profiles.

Citing "market dynamics" and questions about the long-term future of its refinery, Phillips 66 said it would shutter operations by the fourth quarter of next year.

Hillary Stevenson, a senior director for energy market intelligence at Industrial Info, said, "Once the Phillips 66 plants close at the end of 2025, California operational refinery capacity will be 438,500 BBL/d lower than the beginning of 2019."

"Many of the closed refineries have converted to renewable fuel production, which enables refiners to take advantage of favorable state and federal fuel regulations," she added. "The former Phillips 66 - Rodeo, and Marathon - Martinez refineries now produce 918 million gallons per year and 730 million gallons per year of renewable diesel, respectively."

Subscribers can click here for the Rodeo Renewable Fuels facility plant profile and click here for the Martinez facility plant profile.

Higher taxes already mean California has the highest consumer-level prices for gasoline in the nation, and new regulations may be spreading the damage over to the corporate level.

Valero is among the largest refiners in the U.S., but weaker refining margins dealt a heavy blow to the company's finances. Net income for the three-month period ending September 30 was $393 million, 85% lower than during the same period last year.

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