Valero Energy Corp. might shut down its 195,000 bpd refinery in Memphis if Tennessee state lawmakers advance a bill into law that would require refiners and product suppliers to provide unblended gasoline and diesel fuel to the state in order for wholesalers to blend ethanol and biodiesel into the fuel, a company spokesman told DTN.

The spokesman, Bill Day, said Valero sent a letter May 4 to Tennessee Gov. Phil Bredesen saying the proposal to require the refinery to allow “our wholesale customers to blend ethanol into gasoline made at the refinery” would require capital expenditures of between $130 million and $150 million.

“Coupled with the current economic downturn, this makes no economic sense for the refinery, and the expenditure would cause Valero to seriously consider closing the plant,” said Day. ”As you probably know, there is ongoing speculation about which refineries might close due to weak demand, high costs, and geographic or regulatory disadvantages.”

Tesoro Corp. will adjust production to better match weak demand during the second quarter, CEO Bruce Smith said during the company’s earnings call last week.

“Demand is really the key to the second quarter,” he said. “I expect demand to be disciplined to where supply will be. We’re making adjustments, and it will really be the latter part of the second quarter before we can determine where profitability and the strength of demand will be.”

Smith said it would be a challenging quarter, “across the board.”