The hitch in the long-planned project by Tesoro Corp exemplifies
growing problems for moving crude oil on trains around the country
after a string of fiery rail crashes.
While the proposed Keystone XL pipeline is the marquee battle
between pump prices and environmentalist concerns, crude-by-rail is
a growing issue and has a more immediate effect on domestic
consumers and refiners. The cost of delays from the crude-by-oil
fight may be steepest in California, an isolated market increasingly
dependent on foreign oil.
Tesoro's project aims by mid-2015 to start sending up to 360,000
barrels per day of North American crude, including North Dakota
Bakken and Canadian heavy, to the rail port, where all or most of
the oil would ship out on tankers and barges to California
That oil costs up to 25 percent less than some foreign barrels, and
the Tesoro project could replace about a fifth of California's crude
-- around 40 percent of its imports.
Other states have slashed costs by using railroads to tap cheap
crudes from the booming fields of North Dakota and Canada, but
California refineries still depend on arguably the country's most
expensive crude, because there are few pipelines connecting it to
the rest of the country.
Tesoro executives, who want to send cheaper crudes to their Carson
refinery near Los Angeles as well as to other refiners, say they
remain confident the project will go through. Others aren't so
"If you had asked me eight months ago if this would happen, I'd have
said yes," said Mark Luitwieler, co-owner of Houston-based commodity
terminal and railroad logistics company Peaker Energy. "Today,
there’s a lot of hair on that one."
California drivers recently paid $4.09 per gallon compared to $3.47
in Texas, according to U.S. Energy Information Agency data, a
reflection of the extra expense of making California's boutique
blend of less-polluting fuel and higher crude costs.
Refiners in California say that cheaper supplies from the middle of
the country will help fight rising costs. Greg Garland, chief
executive of independent refiner Phillips 66, in April said getting
such "advantaged" crudes was top priority in California.
Tesoro's rail-to-ship option is, in essence, a continental-scale
workaround to sending crude directly to California. Obtaining
permits to build crude offloading facilities in the Golden State has
proven tough for companies including Alon USA Energy and Valero
Energy Corp, which in March withdrew an application for a project in
the Wilmington area of Los Angeles.
Kinder Morgan Energy Partners started moving crude in February to a
former ethanol rail terminal in Richmond, California. Planned
volumes are a fraction of what Tesoro aims to bring through
Washington, but in any case opponents are suing to halt operations
pending an environmental review.
Communities nationwide, and not just ones near refineries, are
voicing concerns about accidents as crude-by-rail grows nationwide,
said Denny Larson, executive director of Global Community Monitor in
"This has become a uniter," he said. "They realize they don't have
to have a refinery to be impacted."
Without the railport in Vancouver, Washington, the California
refineries would have to buy more foreign oil as production from
their traditional, less expensive sources in Alaska and Canada
Though the United States is enjoying greater energy independence, 51
percent of the 1.7 million barrels of crude processed daily in
California is imported, mostly from the Middle East, South America
and Africa, according to the California Energy Commission.
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Imported volumes have risen 17 percentage points over the last
As U.S. benchmark prices crude costs around $100 a barrel, annual
purchases in California may total some $62 billion. Billions could
be saved as inland North American crudes often sell at discounts of
15 to 25 percent to the U.S. benchmark and the main European rate,
Brent, which is more expensive.
There are no easy alternatives to
New pipelines over the U.S. Rockies or crossing Canada to ports in
British Columbia would cost billions of dollars and generate a whole
new wave of environmental opposition.
Developing new oil patches in California is unpopular and
While the California Energy Commission projects that crude delivered
by rail could rise to 25 percent of California's demand by 2016 from
about 1 percent now, oil industry representatives point to a history
of permitting problems on such projects.
Washington Governor Jay Inslee has the final say on the rail
terminal, and he is waiting for analysis of the project to be done
before speaking publicly, a spokesman said. But protests are
growing. The Vancouver city council recently voted 5-2 against the
Tesoro project, a non-binding signal.
City Council member Larry Smith, one of the five opponents,
said there were concerns about railcar security and whether local
emergency responders could handle a spill or a crash.
The project has been delayed about six months to mid-2015 as Tesoro
awaits word from the state on what the company needs to provide for
an environmental impact study. That delay pushed costs to a range of
$150 million to $190 million from $100 million.
Jared Larrabee, general manager of Savage Companies, Tesoro's
partner on the project, said the companies have sought to ease
concerns at some 100 community forums and will do more.
In the meantime, much of the Tesoro project is ready to go. The
Vancouver port beefed up its rail infrastructure, including a huge
loop track now earmarked for Tesoro, in the mid-2000s to handle
mile-long trains carrying grains and iron ore, said Todd Coleman,
the port's executive director.
Tesoro said the project will bring about 120 permanent jobs.
But environmental and safety concerns keep growing: Gov. Inslee has
asked the state Department of Ecology to analyze oil-by-rail risks
and develop spill response plans for Vancouver and nearby counties.
(Additional reporting by Rory Carroll in San Francisco; Editing by
Terry Wade and Peter Henderson)
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