By LYNN DOAN
California, the third-biggest refining
state in the US, is about
to see a flood of oil by rail from places such as Canada and
North Dakota as suppliers seek to tap a market isolated from
the rest of the country.
The Western U.S. may bring 500,000 bpd of light oil by rail
in 2015 as the regions refiners seek to replace
shrinking output in California and Alaska and more costly
foreign imports, said Mark Smith, Tesoro's vice president of
development, supply and logistics. California refineries can
run 1.63 million bpd, the most in the US after Texas and
Louisiana, government data show.
The region has become one of the most depending in the nation
on foreign oil as the West lacks pipeline access to crude
from shale supplies in the middle of the country. Companies
from Alon USA Energy to Valero are looking to tap the market
s that would bring more
crude into the West by rail.
The West Coast is one of the last frontiers where
foreign imports really have a stronghold, and theres
not a lot of alternatives, Smith said at the Crude
By Rail 2014 conference, organized by Houston-based
American Business Conferences. Obviously there is a
huge opportunity here for oil shipped by rail.
It costs $9/bbl to send North Dakotas Bakken crude to
Washington and $4 to $5 more to carry it by ship from there
to California, according to Valero, the worlds largest
independent refiner. Tesoro said the cost of delivering a
barrel by rail from the Bakken to California would range from
$9 to $10.50.
Royal Dutch Shell posted a price of $88.33/bbl on Thursday
for Bakken crude in North Dakota. Alaska North Slope oil
typically used in West Coast refineries cost $109.70/bbl,
according to data compiled by Bloomberg.
California may get more than one-quarter of its crude from
Canada and US states other than Alaska should six proposed
rail-offloading projects win approval, state Energy
Commission data show. Companies including Valero, Phillips 66
and Plains All American Pipeline support the projects.
The state is already bringing in record volume of oil from
Canada by rail, totaling 709,014 bbl in December and
comprising 67% of rail receipts, the Energy Commissions
website shows. Total oil-by-rail volumes to California, the
most populous US state, from all sources surged in the fourth
quarter to a record 2.83 million, almost double the amount
from the three months earlier.
West Coast rail terminals can unload 210,000 bpd, Smith said,
and almost all the refineries in Washington state have their
own offloading complexes.
Wait until some of these crude-by-rail project
s get constructed in
California, said Gordon Schremp, senior fuels
specialist at the Energy Commission. I wouldnt be
surprised to see those kinds of Bakken deliveries having very
low rail economics if all six rail projects get their
Proposals to build new oil-by-rail complexes in the western
US are coming up against increasing scrutiny from state and
local regulators following a series of derailments involving
crude, including the July explosion of a train carrying
Bakken that killed 47 people in Lac-Mégantic, Quebec.
The city of Benicia, California, delayed Valeros plans
to build a rail-offloading station at the 170,000-bpd Benicia
in Northern California to
perform an environment
al review. Valero,
which planned to finish the project by late 2013, said Feb.
13 that it now expects to start the service by the first
quarter of 2015.
That is somewhat dependent on the permitting
process, Joseph Gorder, Valeros president and
chief operating officer, said at the Credit Suisse Global
Energy Summit in Vail, Colorado.
The city of Pittsburg, California, is reopening parts of an
al review of WesPac
Energy's proposal to upgrade a fuel terminal that would be
capable of unloading crude from five trains a week. The
Irvine-based company, which jointly owns the project
with Oiltanking, planned
to begin work on the rail terminal this quarter.
Pittsburg decided based on public comments that more
information is required for the review, Joe Sbranti, the city
manager, said in a Feb. 18 letter to WesPac.
Washington state regulators reversed the approval of two
terminals in November that would have allowed companies to
unload oil from rail cars at the Port of Grays Harbor and
load them onto marine vessels.
Companies including Tesoro, the largest refiner on the West
Coast, have pledged to improve the safety of moving crude by
rail by using newer rail cars and better routing.
Tesoro, based in San Antonio, said Feb. 6 that its
replacing aging tanker cars with DOT-111 cars
designed after October 2011. Its fleet will consist entirely
of the new cars with reinforced shields by mid-2015, the