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Wall Street Journal analyzes California fracking and crude-by-rail, discusses Valero Benicia plan, others

Repost from The Wall Street Journal
[Editor:  Following the money…  WSJ’s important analysis of refinery trends in California includes a brief discussion of current and proposed projects, including Valero Benicia, with quotes by Valero spokesperson Bill Day and Andrés Soto on behalf of Benicians For a Safe and Healthy Community.  Significant quote: “Opposition over safety has drawn out the permitting process in some cases, making some companies rethink their strategies. Valero Energy Corp. in March canceled plans to build an oil-train terminal near its Los Angeles refinery. But Valero still hopes to add a terminal to the company’s Benicia, Calif., plant, 35 miles northeast of San Francisco.   ¶“Every day that goes by that we’re not able to bring in lower cost North American oil, is another day that the Benicia refinery suffers competitively,” says spokesman Bill Day. The state last month asked Benicia for another safety review to better forecast the potential for derailments and other accidents.” – RS]

California Finally to Reap Fracking’s Riches

Crude-by-Rail From Bakken Shale Is Poised to Reverse State Refiners’ Rising Imports
By Alison Sider and Cassandra Sweet, Oct. 7, 2014
Tanker cars line up in Bakersfield, Calif., where Alon USA Energy recently received permission to build the state’s biggest oil-train terminal. The Bakersfield Californian/Associated Press

For the past decade, the U.S. shale boom has mostly passed by California, forcing oil refiners in the state to import expensive crude.

Now that’s changing as energy companies overcome opposition to forge ahead with rail depots that will get oil from North Dakota’s Bakken Shale.

Thanks in large measure to hydraulic fracturing, the U.S. has reduced oil imports from countries such as Iraq and Russia by 30% over the last decade. Yet in California, imports have shot up by a third to account for more than half the state’s oil supply.

“California refineries arguably have the most expensive crude slate in North America,” says David Hackett, president of energy consulting firm Stillwater Associates.

Part of the problem is that no major oil pipelines run across the Rocky Mountains connecting the state to fracking wells in the rest of the country. And building pipelines is a lengthy, expensive process.

Railroads are transporting a rising tide of low-price shale oil from North Dakota and elsewhere to the East and Gulf coasts, helping to keep a lid on prices for gasoline and other refined products.

Yet while California has enough track to carry in crude, the state doesn’t have enough terminals to unload the oil from tanker cars and transfer it to refineries on site or by pipeline or truck.

Just 500,000 barrels of oil a month, or 1% of California’s supply, moves by rail to the state today. New oil-train terminals by 2016 could draw that much in a day, if company proposals are successful.

Bakken oil since April has been about $15 a barrel cheaper than crude from Alaska and abroad, according to commodities-pricing service Platts. That would cover the $12 a barrel that it costs to ship North Dakota crude to California by rail, according to research firm Argus.

The state’s lengthy permitting process has contributed to the shortage of oil-train terminals. Some California lawmakers also want to impose fees on oil trains to pay for firefighting equipment and training to deal with derailments and explosions. And community and environmental activists have been waging war on oil trains. The dangers of carrying hazardous materials by rail were underscored Tuesday when a train carrying petroleum derailed in Canada.

But energy companies recently won two hard-fought victories that will pave the way for California to get more crude by rail.

Kern County officials last month gave Alon USA Energy Inc. permission to build the state’s biggest oil-train terminal. That project, which the company hopes to finish next year, is designed to receive 150,000 barrels of oil a day in Bakersfield, Calif., 110 miles north of Los Angeles.

The site was home to an asphalt refinery until 2012 when Alon shut it down because it struggled to turn a profit. Alon plans to reconfigure and restart the plant, but much of the oil transported there by train will move by pipeline to other companies’ refineries in California.

Plains All American Pipeline LP says it plans to open a 70,000-barrel-a-day oil-train terminal in Bakersfield this month.

And in northern California, a judge last month dismissed a lawsuit brought by environmental groups that challenged Kinder Morgan Inc.’s rail permits. The company is now receiving oil trains at a Richmond, Calif., terminal near San Francisco that was built to handle ethanol.

Opposition over safety has drawn out the permitting process in some cases, making some companies rethink their strategies. Valero Energy Corp. in March canceled plans to build an oil-train terminal near its Los Angeles refinery. But Valero still hopes to add a terminal to the company’s Benicia, Calif., plant, 35 miles northeast of San Francisco.

“Every day that goes by that we’re not able to bring in lower cost North American oil, is another day that the Benicia refinery suffers competitively,” says spokesman Bill Day. The state last month asked Benicia for another safety review to better forecast the potential for derailments and other accidents.

Several oil-train explosions in the last 15 months—including last year’s blast in Lac-Mégantic, Quebec, that killed 47 people—have struck fear in many residents along rail corridors.

“These railcars are not safe at any speed,” says Andrés Soto, a musician from Benicia who has helped organize campaigns against several oil-train projects. “We don’t see that there’s any way that they can actually make these projects fail-safe.”

Environmental-impact challenges have been one means that groups have used to delay oil trains.

Pittsburg, Calif., officials say WesPac Midstream LLC’s proposed oil-train terminal is on hold after the state attorney general asked for an expanded environmental review. The company is gathering answers for regulators and hopes to gain approval and start accepting oil trains at the site by late 2016, 40 miles east of San Francisco, a WesPac spokesman says.

Even if oil trains are kept off California tracks, more fracked crude still could flow to California. A 360,000-barrel-a-day oil-train terminal in Vancouver, Wash., aims to transfer North Dakota crude from tanker cars to barges that will sail the Columbia River about 100 miles northwest to the Pacific Ocean. From there, it is a quick trip down the coast to California ports.

That project also has faced stiff headwinds. Refiner Tesoro Corp. and transportation provider Savage Cos. were forced to postpone the start for the Vancouver terminal because of approval delays. While the governor hasn’t approved the project, the companies say they expect to be up and running next year.

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    Oil-by-rail project for shut California refinery near approval

    Repost from Reuters
    [Editor: Significant quote: “…proposals have faced lengthy delays for comprehensive environmental reviews, public input, and revisions.  Valero Energy Corp, the largest U.S. refiner, postponed its plans to send crude by rail to its San Francisco-area refinery because of such delays, and withdrew permit applications for a similar project at its Los Angeles plant….’I think Bakersfield is probably the best place to build a rail facility in California, because it’s not sitting in San Francisco or LA, and it has access to pipes going north and south. It just seems like it’s going to be a struggle to develop rail in other locations,’ Plains’ Chief Operating Officer Harry Pefanis told analysts in May.”  – RS]

    Oil-by-rail project for shut California refinery near approval

    Kristen Hays, August 15 2014

    (Reuters) – The first new crude-by-rail project at a California refinery is likely to win approval next month after more than a year of scrutiny, the head of the Kern County planning division told Reuters, and it could help reopen the shuttered plant.

    The facility at independent refiner Alon USA Energy Inc’s Bakersfield plant would increase crude offloading capacity to 140,000 barrels per day from its current 13,000 bpd and open up significant access to cheaper inland U.S. and Canadian crudes.

    Alon’s Bakersfield plant is in Kern County, home to about 65 percent of all California oil production, where crude has been produced for more than a century.

    Alon shut the 70,000 bpd Bakersfield refinery in late 2012 because its reliance on more expensive imports and lack of access to other crudes without significant rail rendered the plant unprofitable.

    Other California refiners also struggle with profitability because of reliance on expensive imported crude and costly fuel manufacturing regulations in the biggest gasoline market in the country.

    “We’re supportive of what Alon is doing with this refinery,” said Lorelei Oviatt, director of the county’s planning and community development department. “This refinery is not operating at full capacity. We would like to see this refinery operating at full capacity.”

    Alon didn’t respond to requests for comment.

    The Alon project is among several proposed at California refineries, some of which face growing opposition in light of a spate of crude train crashes in the past year as the U.S. oil boom sent amounts of crude moving by train soaring.

    The worst by far was in Quebec in July last year when a runaway crude train exploded in the town of Lac-Megantic, killing 47 people.

    Several California refiners, largely isolated by the Rocky Mountains from the growing cheap bounty from oilfields in Texas, North Dakota and Canada, want to tap those sources via rail because no major pipelines carry crude from those areas into the Golden State, nor are any planned.

    More than half of the 1.7 million barrels of crude processed by California refiners each day is imported.

    But proposals have faced lengthy delays for comprehensive environmental reviews, public input, and revisions.

    Valero Energy Corp, the largest U.S. refiner, postponed its plans to send crude by rail to its San Francisco-area refinery because of such delays, and withdrew permit applications for a similar project at its Los Angeles plant.

    Kinder Morgan Energy Partners operates the state’s most substantial oil-by-rail facility at a terminal in Richmond, which handles up to 72,000 bpd. Local planners last year approved, without an environmental review, a revised ethanol offloading permit to allow the terminal to handle crude. But opponents are suing to temporarily shut it down and force that kind of review.

    Tesoro Corp faces similar growing opposition for a 360,000-bpd railport project in southwest Washington state that could ship crude to California refineries by tanker.

    That could let California refiners – which includes Tesoro’s Los Angeles-area plant – replace more than 40 percent of more expensive imported oil with North American crudes if all of it were shipped to the state.

    Alon is considering possibly leaving the Bakersfield refinery shut and running the facility as a rail and logistics terminal.

    If the refinery remains shut, the rail operation would be similar to a separate 70,000-bpd oil-by-rail facility Plains All American plans to open in October and eventually expand to 140,000 bpd. That project was approved two years ago before it was acquired by Plains.

    Alon bought the Bakersfield plant out of bankruptcy in 2010 from Flying J Inc, which had shut it in early 2009 shortly after seeking bankruptcy protection. Alon restarted the hydrocracker in the summer of 2011, but operational problems led to more shutdowns and startups.

    David Hackett, president of Stillwater Associates, a refining consultancy in Irvine, California, said the refinery’s spotty operational history may better support a future as a rail hub.

    “They haven’t run it as a refinery in a long time. I don’t think they’ll restart Bakersfield, and I don’t understand why they didn’t pull this off two years ago,” he said.

    ESTABLISHED OIL HUB

    Bakersfield sits in the center of the state’s oil production where the oil industry is long established. Plains executives have said its crude-friendly climate and existing infrastructure make the area more attractive for such projects.

    “I think Bakersfield is probably the best place to build a rail facility in California, because it’s not sitting in San Francisco or LA, and it has access to pipes going north and south. It just seems like it’s going to be a struggle to develop rail in other locations,” Plains’ Chief Operating Officer Harry Pefanis told analysts in May.

    Alon had hoped to have its Bakersfield rail project up and running by the end of 2013, but it, like others in the state, underwent a lengthy environmental review and public comment.

    Oviatt said the Kern County planning department had considered all issues during that review, including safety and spill preparedness.

    Now the project is slated to go before the county’s board of supervisors for a vote at a Sept. 9 public hearing. Oviatt, who is not one of the five members of the board, said she expected a final decision at that time.

    The planning department has signed off on it, and Oviatt said the board tended to be supportive of business.

    “I can’t say how the board would vote, but I do believe that given their business-friendly attitude, they’re going to take all of this into serious consideration.”

    (Reporting by Kristen Hays in Houston; Editing by Terry Wade, Lisa Shumaker, Jessica Resnick-Ault and Phil Berlowitz)
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      REUTERS FACTBOX – California crude sources and oil-by-rail projects

      Repost from Reuters

      FACTBOX-California crude sources and oil-by-rail projects

      Mon Jul 21, 2014

      HOUSTON, July 21 (Reuters) – California refiners remain far behind peers elsewhere in the country in replacing expensive imports with cheaper North American crudes from a new production boom.

      No major crude pipelines cross the Rocky Mountains, leaving the isolated region dependent on rail to tap the burgeoning bounty in Texas, North Dakota and other growing oilfields.

      More than half of the 1.7 million barrels of crude processed by California refineries each day is imported, largely from Saudi Arabia, Ecuador, Iraq and Colombia. The rest comes from California and Alaska, where output is declining.

      Several refiners and logistics or pipeline companies are trying to tap U.S. and Canadian crude via rail, but California’s tough regulatory environment and growing opposition in light of fiery crude train crashes elsewhere could halt current projects and stop new ones from starting up.

      Tesoro Corp and Savage Companies are proposing a 360,000 barrels per day railport at the Port of Vancouver in Washington that, if approved, could potentially replace more than 40 percent of California’s imported crude. Once railed to Vancouver, crude would be loaded onto barges or ships bound for West Coast refineries.

      Here is a rundown of California’s crude slate and existing and pending oil-by-rail projects:

      CALIFORNIA CRUDE
      California’s 1.7 million barrels per day (bpd) of crude processed in 2013 came from these three main sources:
      * Imports: 875,564 bpd, 51 percent of the total
      * California, 631,441 bpd, 37 percent
      * Alaska, 201,720 bpd, 12 percent
      The non-California supply arrives via ships or barges except negligible oil-by-rail shipments, which reached 15,715 bpd in the first quarter of 2014.
      That is less than 2 percent of the overall 873,967 bpd that originated on top U.S. railroads throughout the United States in the same period.
      By comparison, in 2003 a little more than one-third of the 1.8 million bpd of crude processed in California came from imports:
      * Imports, 636,923 bpd, 34 percent
      * California, 792,920 bpd, 42.5 percent
      * Alaska, 438,805 bpd, 23.5 percent
      Source: California Energy Commission
      CaliforniaCBR

      (Reporting By Kristen Hays, editing by Peter Henderson)

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