Global Wins, Tesoro Waits on Bringing Bakken Oil West

August 20, 2014 By

August 20, 2014

by Lynn Doan, Bloomberg

Just as Global Partners LP (GLP) gained approval to unload more oil from rail cars at a marine terminal in Oregon, Tesoro Corp. (TSO) learned its plans for a similar project in neighboring Washington will have to wait.

The projects are among several oil-by-rail proposals facing rising opposition after a series of derailments added to questions about the safety of carrying crude by train. Terminals are being developed across the western U.S. as refiners, lacking pipeline access, turn to rail to move crude from shale formations where output is booming.

“California has arguably the highest crude prices in North America, and there are all these barrels in the middle of North America yearning to be free to go to the coast,” David Hackett, president of energy consulting company Stillwater Associates, said by telephone yesterday from Irvine, California. “How will crude costs come down without those rail projects?”

Oil from North Dakota’s Bakken shale formation was up $1.47 a barrel at $87.95 while crude from Alaska’s North Slope, which meets about 12 percent of California’s demand, gained $1.97 to $103.20, data compiled by Bloomberg at 9:34 a.m. New York time show.

Air Permit

Global Partners received an air permit yesterday from Oregon regulators allowing it to take 120,000 barrels of oil a day off trains at a terminal on the coast. From there it will go to refineries via the Columbia River. In Washington, a state energy siting council extended its deadline to March to consider a 360,000-barrel-a-day terminal proposed by Tesoro and Savage Companies.

A decision on Tesoro’s project probably won’t meet the March deadline, Andrew Hayes, a member of the Washington siting council, said yesterday during a meeting of the panel in Olympia, the capital. He cited the complexity of the plan.

Tesoro is committed to the state regulatory process and expects to start service at the terminal next year, Jennifer Minx, a spokeswoman at the company’s headquarters in San Antonio, said by e-mail yesterday.

Global Partners’ terminal in Clatskanie has been unloading rail cars since 2012. The Waltham, Massachusetts-based fuel distributor was ordered by the state Department of Environmental Quality to apply for a new air permit after the agency discovered the complex was handling more than the roughly 3,000 barrels a day that its permit allowed.

Shale Formations

Tesoro and Global Partners are setting up rail operations as hydraulic fracturing and horizontal drilling unleash a flood of oil from shale formations across the U.S. that the West has little pipeline access to. The shale boom has boosted the nation’s crude production to the highest level in 27 years and helped cut U.S. imports of oil to the lowest seasonal level since 1993.

The rail-to-marine terminal proposed by Tesoro and Savage at the Port of Vancouver, Washington, would become the biggest of its kind to operate in the Pacific Northwest.

Mark Smith, Tesoro’s vice president of development, supply and logistics, said at a conference in February that the Vancouver site would establish the “cheapest route” for oil from North Dakota’s Bakken and Colorado’s Niobrara shale formations as West Coast refiners seek to displace crude from Alaska’s North Slope. Tesoro applied for the project in August 2013 and expected to start operations this year.

Regulatory Delays

Other oil-by-rail projects facing regulatory delays in the West include a complex at Valero Energy Corp. (VLO)’s Benicia refinery in Northern California and a terminal that Alon USA Energy Inc. (ALJ) has been planning at its refinery in Bakersfield, California, since 2012. Benicia’s planning commission voted to extend a public comment period on Valero’s proposal by three months to Sept. 15. Alon is waiting on county permits.

Plains All American Pipeline LP (PAA) plans to start unloading crude from rail cars at a terminal in Bakersfield by the end of October, the company said in a conference call with analysts Aug. 7. The oil will travel by pipeline to refineries in the San Francisco and Los Angeles areas.

The West Coast is bringing in about 100,000 barrels of oil by rail a day, less than 5 percent of the region’s refining demand, Hackett said.

“That’s not anywhere near enough to help make the refineries here more competitive,” Hackett said. “It’s not even going to move the needle on their crude costs.”