Memphis, Tenn.—Valero Energy Corp., the largest U.S. oil refiner, said it is considering shutting down its 195,000-barrel-a-day Memphis refinery if state legislation is passed allowing distributors to blend motor fuel with ethanol and get a federal tax credit, reported Bloomberg.

The state Senate passed the legislation on April 16. Company spokesman Bill Day told Bloomberg  the legislation would force Valero to install new storage tanks and pipelines at a cost of $130 million to $150 million to produce a special formula of gasoline.

In a May 4 letter to Tennessee Governor Phil Bredesen, Richard Marcogliese, Valero’s chief operating officer, said that if the bill becomes law the refiner would be “forced to seriously consider” closing the Memphis refinery, which employs about 500 people. The USW represents workers at the facility.

The federal government requires U.S. refiners and importers of motor fuel to blend 10.5 billion gallons of ethanol with gasoline this year. Al Mannato, who handles fuels issues for the industry’s American Petroleum Institute, told Bloomberg the mandate does not apply to distributors or wholesalers, the primary beneficiaries of the Tennessee bill.

Getting in on the Action
Unhappy that refiners were getting the federal tax credit instead of them, gasoline wholesalers lobbied the state legislature to get in on the action.

Tennessee Democrat Charles Curtiss, who is sponsoring the legislation in the Tennessee House of Representatives, said the proposal is about “a freedom of choice.”

“We’ve got some wholesalers, they’ve been splash blending for years. There’s a movement by ‘Big Oil’ to stop it,” he said to Bloomberg. “There’s a movement to not allow them to buy unblended fuel in the future, and that’s the reason this legislation was filed to begin with.”

Mannato said that state laws that require refiners to sell unblended gasoline at terminals make “compliance with the federal law difficult, if not impossible.” He said North Carolina, Georgia and Missouri are the only states with laws requiring refiners to sell both blended and unblended gasoline to wholesale distributors and marketers. The USW only represents an asphalt refinery in Georgia.

The Tennessee bill would give distributors and fuel marketers a potential cost advantage because they would not have to blend the fuels if the price of ethanol increases above the cost of gasoline, said Mannato.