Deal could stabilize Bay Area Gas Prices

An agreement between Valero Energy and the State of California could mollify price swings in the Bay Area's gas price markets.

In the California pact, Valero assured Attorney General Bill Lockyer that it will open storage capacity for nearly 1 million barrels of crude oil in the Bay Area.

"Lack of storage has been a significant contributing factor to the dysfunction that afflicts California's gasoline market and the exorbitant prices suffered by this state's drivers," Lockyer said in a statement. "This settlement will help stabilize the market in Northern California."

San Antonio-based Valero must build two 450,000-barrel crude oil storage tanks at its Benicia facility by May 31, 2011. Oil stored in tanks leased from Kaneb in Martinez will be transferred to Benicia.

This will free 1 million barrels of storage capacity at the Martinez facility, which will get new owners under a settlement with the Federal Trade Commission. The pact requires Valero to sell Kaneb gasoline and petroleum facilities in New Jersey, Pennsylvania and California, specifically in Martinez and Richmond.

Because there are no fuel pipelines in California, oil is shipped by tanker, a journey that can take two to three weeks. Additional storage allows increased imported supply for refineries, experts say.

In the next 20 years, Northern California will need to increase crude oil storage capacity by an estimated 3 million barrels, according to the California Energy Commission.

Of course, that means squat for people in Southern California.