Kinder Morgan cancels California oil pipeline plan as refiners opt for rail


Kinder Morgan Energy Partners has canceled plans for a $2 billion pipeline that would have given refiners on the US West Coast a direct stream of West Texas crude, the company said Friday.

Kinder Morgan's efforts to woo Valero, Tesoro and other West Coast refiners to take oil from the proposed 277,000-bpd Freedom pipeline ultimately failed after refiners decided taking crude via railcar gave them more flexibility. The pipeline company said it will switch its focus to crude-by-rail projects in Texas and California.

"We did not receive enough interest for us to commit to building the project at this time," said Mark Kissel, Kinder Morgan Energy Partners' president of west region gas pipelines. "We don't believe in the concept of build it and they will come."

Kinder Morgan Energy Partners first proposed the Freedom pipeline in April as a way to bring the growing supply of light, sweet crude being produced in Texas to southern California, an area dependent on more expensive oil shipped in from Russia, Ecuador and more than a dozen other countries.

But refiners balked at the project, saying they preferred rail's potential to bring crude oil from North Dakota, south Texas and elsewhere depending on changing market conditions. Shipping crude oil from the Bakken oil field in North Dakota would cost almost the same as bringing west Texas crude oil via Freedom and not tie refiners down to long-term pipeline contracts, refiners said.

Valero, one of the largest independent refiners in the US, is in the midst of a $30 million project to add rail capacity at its 170,000 bpd refinery in Benicia, Calif.

Tesoro, considered the biggest proponent of crude by rail, announced last month a $100 million joint venture with freight company Savage to bring an initial 120,000 bpd of crude from the Bakken Shale in North Dakota to the company's West Coast refineries by rail and barge.

Dow Jones Newswires

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