Pipeline spill could further hamper big California oil projects
By Kristen Hays, May 22, 2015 9:53pm EDT
HOUSTON – Hundreds of barrels of oil that gushed from a ruptured coastal pipeline in scenic California this week could stiffen opposition to large oil projects that companies want to build in the state, notably those to deliver cheap U.S. crude on trains.
Several proposed oil-by-rail offloading terminals in California were already being contested in light of several fiery crude train derailments since 2013 that have stoked safety concerns about spills and explosions.
Now, the sight of oil washing up on the shores of Santa Barbara could further galvanize rail opponents after up to 2,500 barrels of crude leaked on Tuesday from a pipeline owned by Plains All American Pipeline LP (PAA.N).
“The more oil we’re moving through the state, the greater the risk of these sorts of accidents,” said Paul Cort, an attorney with EarthJustice, which has sued to stop crude deliveries at Plains’ 70,000 barrels per day (bpd) oil-by-rail terminal in Bakersfield.
Past spills have prompted policy changes. A leak of 100,000 barrels of crude off Santa Barbara in 1969 led to bans on new leases for offshore drilling in California.
The latest spill could complicate regulatory approvals.
“It’s certainly not good news for anyone trying to permit any kind of oil-related facilities in California,” said John Auers, a consultant at Turner, Mason & Co in Dallas.
Refiners Valero Energy Corp (VLO.N) and Phillips 66 (PSX.N) want to use railways to transport cheap crude from onshore fields in North America to northern California refineries to displace more pricey foreign imports.
But the projects, which could help mitigate upward pressure on gasoline prices that are among the highest in the United States, have been repeatedly delayed to allow for lengthy environmental reviews.
Some companies have given up.
Nearly two months ago, WesPac Energy-Pittsburg LLC withdrew the 51,000 bpd oil-by-rail component in a broader proposal that has been awaiting permits from the city for more than two years. WesPac now proposes that crude would move into the terminal only via pipeline or vessel if approved. Valero last year scrapped crude-by-rail plans at its Los Angeles-area refinery.
And even some companies with permits face more hurdles.
EarthJustice is suing local permitting agencies over both the Plains’ Bakersfield operation, which the company aims to expand to 140,000 bpd, and a new Alon USA Energy (ALJ.N) rail project nearby slated for next year.
“People trying to build projects that bring North American crude oil to displace imports at California refineries now have another thing they have to deal with,” said David Hackett, a consultant with Stillwater Associates in Irvine, California.
(Additional reporting by Rory Carroll in San Francisco; Editing by Terry Wade and Grant McCool)
Repost from North American Shale Blog [Editor: Notwithstanding the disparaging remarks about crude-by-rail opponents and politics in California, this is an interesting report by a pro-industry analyst. – RS]
California Crude Trains: How Much Oil Is Actually Coming In and Where Is It Coming From?
By Gabriel CollinsCalifornia has become ground zero for legal opposition to crude-by-rail projects. Opponents decry derailments, toxic vapors, and other ills.[i] Yet despite the dire images painted by crude-by-rail’s opponents, the reality on the ground in California has been quite mundane thus far. The high-water mark to date for California railborne crude supplies was approximately 39 thousand barrels of oil per day (kbd) in December 2013 (Exhibit 1).
To put this number in perspective, California refineries typically process an average of around 1.7 million barrels per day of crude – meaning that at the crude-by-rail peak, only about one barrel in 50 of the state’s crude supply came in by rail.[ii] Presently, the number is closer to one barrel in 100 – certainly not the overwhelming flood of trains opponents fear. And to that point, even supplying one-quarter of California’s total crude oil needs would only require about six to seven crude oil unit trains per day. To put this in context, the Colton Crossing east of Los Angeles by itself can see more than 100 freight trains per day.[iii]
Exhibit 1: California Crude by Rail Sources
Where California’s Railborne Oil Imports Come From
For much of the past six years, light, low-sulfur Bakken crude and heavier, higher-sulfur Western Canadian Select (“WCS”) dominated rail imports into California. Canadian supplies show a clear correlation with how cheap WCS is relative to Maya, a heavy crude oil from Mexico that is shipped by tanker and offers a proxy for what heavy, sour, waterborne crude oil imports into California will cost. The spread between WCS and Maya prices matters because it only makes sense for refiners to purchase WCS barrels if they are sufficiently discounted that the buyer still comes out ahead after adjusting for rail transport costs, which can amount to approximately $20/barrel for manifest trains and $15/barrel for oil moved on unit trains.[iv]
For reference, “manifest trains” are mixed cargo trains where a 100-car freight train might include 20 or 30 tanker cars carrying oil. Unit trains, on the other hand, carry only one type of freight, meaning that all 100 to 120 cars carry crude oil. This maximizes economies of scale and significantly reduces transportation costs. Shipments of Canadian crude oil into California traditionally rode on manifest trains, but in November 2014, Union Pacific brought its first unit train of crude oil from Western Canada into California, to a terminal near Bakersfield.[v] The route is currently dormant as WCS crude’s discount to Maya was less than $10 per barrel in January 2015, according to official price data, making it uneconomical to import the Canadian oil by rail.[vi] Unit trains’ lower costs relative to the previously used manifest trains will likely have oil trains rolling from Alberta to California once again if the WCS discount widens to around $15 per barrel.
California has also seen increased supplies of light, low-sulfur crude oil from New Mexico in recent months. The most likely explanation for this is that continued strong oil production in Texas, New Mexico, and the Midcontinent are inundating the Gulf Coast with light, sweet barrels. Indeed, this author’s models using official Energy Information Administration data strongly suggest that Gulf Coast refineries have hit a physical “wall” where they are not able to sustainably use more than 65 percent domestic crude oil to supply their plants, because facilities designed for heavier, higher-sulfur oils cannot run at maximal efficiency with light, low-sulfur crude feedstocks.[vii] This crowded market reduces the potential realized value of crude to certain Permian Basin producers and makes California attractive as a clearing destination because crude can be railed from the Permian Basin to California for as little as $7-8/bbl, according to Tesoro.[viii]
What the Future May Hold
The bottom line is that California’s existing crude-by-rail terminal capacity is massively underutilized at present. The state’s two largest facilities alone – Kinder Morgan’s terminal at Richmond and new terminal near Bakersfield – can offload more than 140 kbd at full capacity. In comparison, crude-by-rail import volumes were less than 20 kbd in December 2014, the last month for which data are available (Exhibit 2).
Exhibit 2: California Crude by Rail Capacity vs. Actual Import Volumes
Current terminal capacity is sufficient for approximately two unit trains per day of crude – 140 to 150 kbd – to enter the state. California’s fickle politics make forecasting crude-by-rail volumes a tough exercise. That said, this author believes that if oil prices recover to at least $75/bbl, California’s railborne crude imports will likely exceed 200 kbd by early 2016. Under those conditions, existing terminals would increase their capacity utilization and larger price differentials would attract additional Canadian heavy crude, as well as Bakken and other light, sweet grades from the Rocky Mountain states and the Permian.
Repost from The Huffington Post [Editor: Our friend here in Benicia, Ed Ruszel, has been featured in numerous online blogs and news outlets in this story by Tara Lohan. This is an abbreviated version. The article mistakenly gives a link to The Benicia Independent rather than Benicians for a Safe and Healthy Community. BSHC can be found at SafeBenicia.org. – RS]
The Fight to Stop a Boom in California’s Crude by Rail
By Tara Lohan, 01/08/2015
Ed Ruszel’s workday is a soundtrack of whirling, banging, screeching — the percussion of wood being cut, sanded and finished. He’s the facility manager for the family business, Ruszel Woodworks. But one sound each day roars above the cacophony of the woodshop: the blast of the train horn as cars cough down the Union Pacific rail line that runs just a few feet from the front of his shop in an industrial park in Benicia, California.
Most days the train cargo is beer, cars, steel, propane or petroleum coke. But soon, two trains of 50 cars each may pass by every day carrying crude oil to a refinery owned by neighboring Valero Energy, which is hoping to build a new rail terminal at the refinery that would bring 70,000 barrels a day by train — or nearly 3 million gallons.
And it’s a sign of the times.
Crude-by-rail has increased 4,000 percent across the country since 2008 and California is feeling the effects. By 2016 the amount of crude by rail entering the state is expected to increase by a factor of 25. That’s assuming the industry gets its way in creating more crude-by-rail stations at refineries and oil terminals. And that’s no longer looking like a sure thing.
Valero’s proposed project in Benicia is just one of many in the area underway or under consideration. All the projects are now facing public pushback–and not just from individuals in communities, but from a united front spanning hundreds of miles. Benicia sits on the Carquinez Strait in the northeastern reaches of the San Francisco Bay Area. Here, about 20 miles south of Napa’s wine country and 40 miles north of San Francisco, the oil industry may have found a considerable foe.
Photo by Sarah Craig
A recent boom in “unconventional fuels” has triggered an increase in North American sources in the last few years. This has meant more fracked crude from North Dakota’s Bakken shale and diluted bitumen from Alberta’s tar sands.
Unit trains are becoming a favored way to help move this cargo. These are trains in which the entire cargo — every single car — is one product. And in this case that product happens to be highly flammable.
This is one of the things that has Ed Ruszel concerned. He doesn’t think the tank cars are safe enough to transport crude oil in the advent of a serious derailment. If a derailment occurs on a train and every single car (up to 100 cars long) is carrying volatile crude, the dangers increase exponentially. In 2013, more crude was spilled in train derailments than in the prior three decades combined, and there were four fiery explosions in North America in a year’s span, the worst being the derailment that killed 47 people and incinerated half the downtown in Lac Megantic, Quebec in July 2013.
One of the biggest omissions in Valero’s DEIR was Union Pacific not being named as an official partner in the project. With the trains arriving via its rail lines, all logistics will come down to the railroad. Not only that, but the federal power granted to railroad companies preempts local and regional authority.This preemption is one of the biggest hurdles for communities that don’t want to see crude-by-rail come through their neighborhoods or want better safeguards.
The DEIR also doesn’t identify exactly what kind of North American crude would be arriving and from where. Different kinds of crude have different health and safety risks. Diluted bitumen can be nearly impossible to clean up in the event of a spill and Bakken crude has proved more explosive than other crude because of its chemical composition. It’s likely that some of the crude coming to Valero’s refinery would be from either or both sources.
Public comments on the DEIR closed on Sept. 15, and now all eyes are on the planning department to see what happens next in Benicia.
But the Valero project is just the tip of the iceberg in California.
In nearby Pittsburgh, 20 miles east of Benicia, residents pushed back against plans from WestPac Energy. The company had planned to lease land from BNSF Railway and build a new terminal to bring in a 100-car unit train of crude each day. The project is currently stalled.
But Phillips 66 has plans for a new rail unloading facility at a refinery in Nipomo, 200 miles south of the Bay Area in San Luis Obispo County, that would bring in five unit trains of crude a week, with 50,000 barrels per train.
Further south in Kern County in the heart of oil country, Plains All American just opened a crude by rail terminal that is permitted for a 100-car unit train each day. Another nearby project, Alon USA, received permission from the county for twice as much but is being challenged by lawsuits from environmental groups.
Closer to home, unit trains of Bakken crude are already arriving to a rail terminal owned by Kinder Morgan in Richmond. Kinder Morgan had been transporting ethanol, but the Bay Area Air Quality Management District allowed Kinder Morgan to offload unit trains of Bakken crude into tanker trucks.
Photo by Sarah Craig
With all this crude-by-rail activity, some big picture thinking would be helpful. As Attorney General Kamala Harris wrote about the Benicia project, “There’s no consideration of cumulative impacts that could affect public safety and the environment by the proliferation of crude-by-rail projects proposed in California.”