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Valero oil-by-rail plan has ‘unavoidable’ air impacts

06.17.2014  | 

Valero has applied to build a rail-offloading rack at the Benecia refinery northeast of San Francisco that would take oil from as many as 100 tanker cars a day.

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By LYNN DOAN
Bloomberg

Valero Energy’s plan to unload as many as 70,000 bpd of oil from trains at its Benicia refinery will increase emissions across California in a “significant and unavoidable” way, a city report shows.

Valero has applied to build a rail-offloading rack at the plant northeast of San Francisco that would take oil from as many as 100 tanker cars a day. The San Antonio-based company delayed the project’s completion by a year to early 2015 as it awaits approval from the city.

“Project-related trains would generate locomotive emissions in the Bay Area Basin, the Sacramento Basin, and other locations in North America,” the city of Benicia said in an environmental assessment posted on its website. “The city has no jurisdiction to impose any emission controls on the tanker car locomotives; therefore, there is no feasible mitigation available to reduce this significant impact to a less-than-significant level.”

Valero is proposing the rail spur as record volumes of oil are extracted from North American shale formations that the US West Coast has little pipeline access to. California’s refiners are already bringing in the biggest-ever volumes of oil by rail as they seek to displace shrinking supplies of crude within the state and from Alaska.

A series of explosions and derailments of trains carrying crude, including one in Quebec that killed 47 people in July, touched off a flood of letters to the city of Benicia about Valero’s project and compelled the planning commission to put off a decision until an environmental study could be done.

New Rules

Regulators in both the US and Canada are imposing new rules designed to improve the safety of trains carrying oil and a group of California agencies released a report June 10 recommending ways in which the state should respond.

Earlier this month, the city council in Vancouver, Washington, voted to oppose a proposal by Tesoro and Savage to build a 360,000-bpd, rail-to-marine complex at the Port of Vancouver.

Valero’s Benicia project would probably result in a spill of more than 100 gallons once every 111 years, according to an analysis conducted as part of the city’s environmental report. The report was prepared by researchers at the University of Illinois’s Rail Transportation and Engineering Center in Urbana, Illinois.

California’s refiners received 557,315 bbl of oil by rail in April, the most ever for that month, state Energy Commission data show. Crude from Canada made up 45% of the state’s total rail receipts. Oil from North Dakota accounted for 22%.

’Challenged’ Market

Valero has described refining in the western US as “a challenged market” with margins close to break-even when all of the region’s plants are running normally. Profits from the 132,000-bpd Benicia refinery are particularly under pressure, Joe Gorder, the company’s president and CEO, said in a presentation May 21.

The plant “produces a significant yield of gasoline, which, of course, we’ve seen the margins compressed on and demand not be the greatest on,” Gorder said at the UBS Global Oil and Gas Conference in Austin, Texas. Sourcing alternative crudes on the West Coast “would increase the economics out there for us substantially,” he said.

Spot California-grade diesel has traded about 3.5 cents/gal above gasoline in Los Angeles this year and averaged an 8.75-cent premium in 2013, data compiled by Bloomberg show.



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