Federal regulators on Tuesday ordered shippers to properly test and classify crude oil from the productive Bakken region before loading it onto freight trains, a move meant to tighten regulatory standards after a spate of derailments and explosions that highlighted the hazards of carrying crude oil on rails.
The announcement from the office of secretary of transportation, Anthony Foxx, was the fourth emergency order or safety advisory issued in the last seven months related to the booming oil-by-rail trade.
The Transportation Department is under pressure to beef up the safety of these trains, a business that has soared in the last two years thanks to the growth of domestic oil production in North Dakota. Recent accidents have drawn attention to the risks of shipping large quantities of crude oil in unpressurized railcars. The danger was highlighted in July when a runaway train derailed in Quebec, killing 47 people.
On Friday, regulators announced that the major railroads had agreed to eight voluntary measures that would reduce the risk of rail shipments, including traveling at lower speeds and adding more braking mechanisms on freight trains.
The latest order directed shippers to label crude oil as Packing Group I or II hazardous material. These terms designate the strongest safety groups used by shippers and require the use of “more robust tank cars,” according to the department.
The order effectively limits the shipping of oil to the most commonly used type of tank cars, known as DOT-111s. Even those cars, however, are known to break up too easily in a crash. Regulators are also working on new, tougher tank car standards.
In practical terms, the order will help ensure that emergency responders are fully aware of the content of the tank cars in the event of a crash or derailment.
Failure to comply is subject to civil fines of up to $175,000 a day as well as criminal pursuits that carry jail terms of up to 10 years.
WASHINGTON – The Department of Transportation outlined several steps Friday aimed at improving the safety of crude oil in trains after a series of derailments sparked concern from state and local officials.
Among other measures, trains carrying crude oil in older, less reinforced tank cars will slow to 40 mph through 46 major cities.
Railroads will also conduct more frequent inspections of tracks over which crude oil shipments move, improve those trains’ braking capabilities and install new sensors along major routes to detect train defects.
The department also said it would work with railroads to determine the safest routing options for crude oil, examine emergency response capabilities and address the concerns of individual communities on a case-by-case basis.
The measures are voluntary and will be implemented by July 1.
“Every day we expect continuous safety improvement,” Joseph Szabo, who heads the Federal Railroad Administration, told McClatchy.
Transportation Secretary Anthony Foxx laid out the steps in a letter to the Association of American Railroads, the industry’s Washington advocacy group.
“Nothing is more important for all involved than safety,” he wrote.
Edward Hamberger, the rail industry group’s president and CEO, said in a statement that the industry would continue “to find even more ways to reinforce public confidence in the rail industry’s ability to safely meet the increased demand to move crude oil.”
According to Hamberger’s group, the volume of crude oil moving by rail increased to 400,000 cars last year from fewer than 10,000 in 2008. Rail has captured the bulk of crude shipments from North Dakota’s booming Bakken shale region, in large part because pipelines simply don’t go where the oil is needed and take a long time to construct.
In a statement, Roxanne Butler, a spokeswoman for BNSF Railway, said the railroad supports the steps DOT outlined Friday. On Thursday, BNSF, the continent’s leading hauler of crude oil in trains, said it would buy 5,000 new, better-reinforced tank cars for crude. Billionaire investor Warren Buffett bought the Fort Worth, Texas, company in 2009.
“The rail industry plays a critical role in helping the U.S. and North American economies achieve energy independence,” Butler said, “and this crude oil safety initiative will enable that to continue to develop with even greater safety.”
The rapid development of Bakken oil forced the use of tens of thousands of tank cars, called DOT-111A, that have long been identified as vulnerable to breaches in derailments. Regulators concluded last month that Bakken oil, extracted through hydraulic fracturing, is more flammable than conventional oils.
The results have proved destructive and deadly. In July, 47 people were killed when a train loaded with Bakken crude derailed and exploded in Lac-Megantic, Quebec. More recent derailments in Alabama, North Dakota and Pennsylvania resulted in intense fires, large spills or both. Officials from mayors to members of Congress have demanded that federal regulators respond to the new danger their communities face.
“These standards are good news for communities near rail lines, but there is more work to do,” said Rep. Rick Larsen, D-Wash., who’s on the House Transportation and Infrastructure Committee.
The committee will hold a hearing Wednesday on rail safety. Officials from the Transportation Department, the rail and petroleum industries and the National Transportation Safety Board will testify.
Friday’s announcement does not address the safety of the DOT-111A tank cars. The Pipeline and Hazardous Materials Safety Administration at the Transportation Department is working on new standards for them, but a final rule won’t likely come for another year.
Szabo, the federal railroad administrator, said that tank cars are “one small piece of the puzzle.”
The NTSB has noted their failures in multiple accidents over the years and recommended that they be retrofitted with extra protective shielding or replaced with new cars.
Meanwhile, BNSF and other railroads are moving in that direction. Canada’s two largest railroads last week said they would impose additional fees on shipments of crude oil in older DOT-111A tank cars.
At least two refiners have said they will only ship crude oil in newer tank cars.
Last updated: Thursday, February 13, 2014, 4:21 PM Posted: Thursday, February 13, 2014, 3:45 PM
A Norfolk Southern Corp. train bound for the Philadelphia area and carrying heavy Canadian crude oil derailed in Vandergrift in Western Pennsylvania on Thursday, the company confirmed.
Twenty-one tank cars came off the track and at least three tank cars leaked crude oil onto the ground, said a Norfolk Southern spokesman. There were no injuries or fire. The thick, heavy petroleum from the Canadian oil sands is not as explosive as the light, volatile North Dakota crude that has been involved in several recent rail accidents that caused explosions.
The train’s destination was Morrisville, Pa. The oil tankers involved in the derailment were leased by NuStar Energy and bound for its asphalt plant in Paulsboro, N.J., said NuStar spokeswoman Claire P. Riggs.
Exploding Oil Trains Push States to Create Response Plans
By Freeman Klopott Feb 3, 2014 9:00 PM PT
States from California to Maine are hiring rail inspectors and oil-spill experts as they draw up emergency plans after trains carrying crude derailed and burst into fireballs, including a crash inQuebec that killed 47.
In California, Governor Jerry Brown is proposing a 15 percent funding boost for his response agency. New York Governor Andrew Cuomo last week ordered five departments to create spill disaster plans and wants to double the number of train inspectors. The July disaster in the Canadian town of Lac-Megantic was followed in December by BNSF Railway Co.’s 400,000-gallon explosion in North Dakota.
Oil shipments by train have grown 400 percent since 2005, the American Railroad Association says. Crude pumped from North Dakota’s Bakken formation and Texas’s Eagle Ford shale is set to propel the U.S. past Saudi Arabia as the world’s largest supplier in 2015. Even ifTransCanada Corp. (TRP)’s Keystone XL pipeline is completed, hundreds of thousands of barrels will still need to travel by rail to refineries and ports.
“I don’t think anyone really realized how quickly this Bakken oil plume would have grown and how quickly the private rail market would grow to deliver it,” Joan McDonald, commissioner of New York’s transportation department, said in an interview in Albany. “It’s important that we look at it and do everything we possibly can.”
Only the federal government can set rail standards. As states and localities prepare for disaster, they’re pressuring U.S. regulators to write rules to prevent them. Chicago’s Rahm Emanuel and Michael Nutter of Philadelphia, both Democrats, are leading a call by U.S. mayors for a “hazardous materials freight fee” for companies that extract crude oil and those who consume it. The funds would be used to upgrade rail infrastructure, Emanuel said.
At Cuomo’s direction, state agencies sent a letter on Jan. 28 to federal officials asking for new tank-car standards and routes away from populated areas.
Last month, the U.S. National Transportation Safety Board and the Canadian Transportation Safety Board issued recommendations as part of a probe into the Lac-Megantic derailment. The accident sent a fireball through the center of the town of 6,000 early on July 6, turning a crowded pub into a deadly inferno.
The oversight authorities said crude oil needs to be hauled in stronger tank cars and on safer routes. Neither board can enforce standards, which are overseen by agencies such as the U.S. Transportation Department and Transport Canada. (ENT) Modifying the tank cars may cost leasing companies and shippers about $5.2 billion, according to estimates by Bloomberg Government.
U.S. Transportation Secretary Anthony Foxx last month met with officials from the railroad and oil industries, who agreed to spend 30 days examining steps to improve safety.
“Voluntary efforts are insufficient to tackle this growing problem,” McDonald and three other New York agency chiefs said in the letter to Foxx and other officials. “The residents of New York cannot wait for the federal government to address these issues in an unsynchronized manner.”
Casey Hernandez, a U.S. Transportation Department spokeswoman, said the department welcomes proposals.
“There is not one action that will solve this issue, and we need to make sure the focus of our wide-ranging approach is on prevention, mitigation, emergency response and stakeholder outreach,” Hernandez said by e-mail.
Crude-by-rail accidents climbed to 108 last year from nine in 2010, according to data from the Pipeline and Hazardous Materials Safety Administration, an arm of the Transportation Department. On Jan. 2, the department issued a safety alert that said the type of oil pumped from North Dakota shale may be more flammable — and therefore more dangerous — to ship by rail than crude from other areas.
“This is one of the only crude oils in the world that will touch off with a match,” said Thomas Cullen, who heads California’s Office of Spill Prevention and Response. “In Quebec, it was like a river of napalm.”
Under a budget proposal by Brown, a Democrat, Cullen’s department would get an extra $6.7 million annually and add 38 positions, he said. Historically, the agency’s focus has been on preventing and responding to oil spills at sea. Over the next two years, California is expecting a 28 percent shift to trains from boats for oil deliveries, Cullen said. The agency isn’t ready, he said.
“We aren’t conducting drills and exercises and we don’t have contingency plans on file,” Cullen said in a telephone interview.
Last year, as rail cars carrying crude came rolling in from Canada, emergency planners in Mainetraveled the line to map how they could reach spills deep in the wilderness, Jessamine Logan, a spokeswoman for the Maine Environmental Protection Department, said by phone. A state law that went into effect in October requires rail companies to report when and how much crude they’re carrying and pay into a fund to help clean up spills, she said.
The Lac-Megantic explosion took place 10 miles (16 kilometers) from the Maine border.
Bakken crude travels over about 1,000 miles of rail in New York, Cuomo, a Democrat, said in an e-mailed statement. Much of it goes to Albany where about 120 carloads each day are transferred to ships, which then travel down the Hudson River to New York City and beyond.
In his Jan. 28 executive order, Cuomo required five agencies to provide a report by April 30 that shows the state’s ability to respond to an oil-by-rail spill, how that can be improved and what regulatory changes are needed. The budget Cuomo proposed last month adds five rail inspectors, bringing the total to 10.
“We cannot wait for a catastrophic accident to assess and reform the way this crude oil is transported through our state,” Cuomo said.
Concern grows over possibility of a massive power surge
Whether caused by solar flares or terrorists, a major electromagnetic pulse could fry the electric grid and cause massive disruption, an increasing number of observers say.
By Evan HalperFebruary 1, 2014, 9:05 p.m.
FREDERICK, Md. — Roscoe Bartlett was rattling off the prices of giant bags of rice, wheat and corn, sold cheaply at Sam’s Club. The former congressman from rural, western Maryland expressed bewilderment that every American doesn’t stockpile such things, considering what he is sure is coming.
“Storing enough calories isn’t really a challenge,” said the rugged 87-year-old Republican, who served 10 terms on Capitol Hill. “The real challenge is vitamins and stuff.”
Bartlett is preparing for an epic power outage. More than the lights would go out, he fears. All electronics could malfunction. Cars might not run. GPS systems would fail. Generators would be of no use, as gas pumps would stop working. The disruption could last a year or more. There would be looting, rioting, a general societal collapse.
It will be caused, he says, by a surge of magnetic current that fries the power grid and wreaks havoc on all electronics. Either a solar storm will trigger it, he says, or a terrorist act.
The scenario seems purely one of science fiction, and, in fact, many analysts dismiss as overwrought the scenes of devastation sketched out by the former congressman and fellow believers.
But the ranks of those concerned that the country is on a collision course with a dangerous electromagnetic surge have increased considerably of late. Long the preserve of hawkish conservatives — notably former House Speaker Newt Gingrich — the idea that the power system is at risk has been drawing a wider audience. Regulators have begun scrambling to put a plan in place.
“We definitely think this is a risk,” said Trevor Maynard, head of exposure management at Lloyd’s of London. “It is one of those hazards you just know is going to happen, just like you know a major Miami hurricane will happen.”
Of course, the fact that a massive hurricane will hit Miami — or a major earthquake will strike Southern California — hasn’t stopped millions of people from flocking to those areas.
For government officials, few problems are tougher than deciding how best to head off rare, but potentially devastating, event risks. Do too much and you impose unreasonable costs and hurt the economy in response to a problem that might not happen for centuries. Do too little and you add to a list of unheeded disaster warnings that includes the risk of storm surges in New Orleans and tsunamis in the Indian Ocean.
In the case of electronic pulses, the most sober warnings come from government weather scientists.
At a recent conference in Washington, William Murtagh of the federal Space Weather Prediction Center described the dangers of a massive solar storm that is, as the Lloyd’s report on the issue says, “almost inevitable.”
Such storms take place roughly every 150 years. The last one was 155 years ago.
During the “Carrington event” of 1859, named after the English astronomer who observed it, a huge solar storm ejected a mass of particles and electromagnetic energy intense enough to induce a surge that knocked out the switching system of the New York Central Railroad below 125th Street and caused the control tower to catch fire. News reports told of telegraph wires going berserk.
But electricity was hardly the backbone of society in pre-Civil War America. Scientists fear such an occurrence now could cause chaos.
A preview of the potential damage came in 1989, when the Hydro-Quebec power grid in Canada collapsed in less than two minutes from a solar storm. Six million people were without power for nine hours.
A bigger event could knock out multiple transformers — so many, perhaps, that backup systems would be overwhelmed. Replacing them could take months.
Lloyd’s is uncertain whether the impact of a solar-storm-induced magnetic pulse would be cataclysmic. But its worst-case scenario would truly be: 20 million to 40 million Americans losing electricity for as long as a year or two, “resulting in major and widespread social unrest, riots and theft.”
A year and a half ago, America came close — at least in astronomical terms — to finding out what could happen. In July 2012, a massive ejection from a solar storm headed toward Earth. The storm was the size of Carrington’s. It missed Earth’s orbital position by seven days.
That was a wake-up call, said Daniel Baker, director of the Laboratory for Atmospheric and Space Physics at the University of Colorado, Boulder.
At a San Francisco meeting of the American Geophysical Union in December, Baker proposed the government take the information collected from the 2012 event and use it to create a kind of geomagnetic “war games” to simulate the effects of a huge solar flare, “rather than waiting to be clobbered by a direct hit.”
Congress has taken note, as has the Federal Energy Regulatory Commission, which has asked utilities to assess their vulnerabilities and come up with plans.
Many in Congress want to go further, pushing measures to force utilities to update their systems. Congressional investigators have warned that in a major crisis, the “mutual assistance agreements” under which utilities help one another in disasters would fall apart.
Supporters of the legislation, which passed the House in 2010 but died in the Senate, have suggested requiring utilities to keep more spare transformers and other equipment on hand. They also want utilities to install “blocking capacitors” and other devices to shield key equipment.
In Quebec, the government invested $1.2 billion installing such devices after the 1989 blackout. The cost to U.S. utilities would be substantially more, given the size and complexity of the American power grid.
In Maine, lawmakers who grew impatient waiting for Congress to pass a bill have gone ahead with their own measure requiring utility action. Other states are pondering similar bills.
Utilities have resisted such major investments, opting instead for a strategy focused on shifting power loads to soften the blow to the grid in the event of an extreme solar storm.
In Congress, the effort has drawn unusual bipartisan backing, including many tea party Republicans as well as liberals such as Rep. Henry A. Waxman (D-Beverly Hills), whose staff co-wrote a report concluding that power companies are unprepared.
“This has become a strange alliance,” said Peter Pry, a former CIA analyst at the forefront of lobbying efforts to “harden” the grid.
“I am a tea party Republican who does not like big government. But people like me who are genetically antigovernment are nonetheless trying to expand its regulatory powers to do something about this,” he said.
The tea party interest stems largely from the efforts of people including Gingrich, Bartlett and former CIA Director James Woolsey, who have spent years warning of the danger, not of a solar flare but of a similar electromagnetic pulse caused by a terrorist act.
In theory, a terrorist group with a nuclear weapon could unleash a high-altitude explosion that would create a pulse large enough to mimic the impact of a massive solar storm.
“An attack of this sort is much easier than most nuclear attacks people talk about,” Woolsey said at the same conference where Murtagh spoke. “People say, ‘The North Koreans, Iranians, whoever, are not crazy. There would be retaliation. Let’s forget about this.’ I don’t think so.”
Others have their doubts.
“The capacity we have to model out the effects of this kind of attack is very limited,” said Jeffrey Lewis, a nonproliferation scholar at the Monterey institute of International Studies. “People are saying these outlandish things that are not related to data. You get skeptical of them really quick.”
Lewis believes the doomsday scenarios are being peddled in the interest of other agendas, such as promoting missile defense systems and early strikes on Iran and North Korea.
As that debate plays out, Bartlett, the former congressman, is holding out hope that Congress or the states will ultimately force utilities to do more. In the meantime, he offers this advice: Get over to Sam’s Club.
WASHINGTON — The energy boom of the last decade that has boosted oiland gas production in the United States has outpaced the development of critical infrastructure to transport the raw and refined materials, U.S. Energy Secretary Ernest Moniz said on Thursday.
Reflecting on a spate of accidents involving freight trains pulling tank cars full of volatile crude oil in Canada and the United States, Moniz said that infrastructure development was key, even beyond a reconsideration of rail regulations now under way by U.S. authorities.
“The core approach, really, is that our infrastructure needs to build out,” Moniz said in an interview with Reuters Insider.
“Here we have a case, especially with the production in North Dakota, where the Bakken shale (output) zoomed from essentially nothing to past 1 million barrels a day,” he said.
“There’s not the pipe infrastructure for moving the product out … you have a slight mismatch in terms of how we add infrastructure to handling our new production.”
One way of getting more crude oil out of the Bakken would be TransCanada Corp’s proposed Keystone pipeline from Canada to the Gulf of Mexico, expected to have “onramps” to pick up oil in North Dakota.
Moniz did not discuss Keystone, though, in a broad-ranging interview that touched on U.S. liquefied natural gas (LNG) export markets, carbon capture and sequestration, and the Obama administration’s “moral obligation” to work on ways to mitigate climate change.
In December Moniz caused a stir by suggesting that a 40-year ban on exports of U.S. crude oil was outdated.
On Thursday he said merely that the “tremendous increase” in oil and natural gas production “is certainly reordering our view of the energy markets and also the reality of the energy markets.”
Moniz said the Energy Department has not put a hold its consideration of LNG export terminals. After a flurry of approvals in mid-2013 the most recent announcement was on November 18.
The government has been methodically working down a list of more than a dozen proposals. “We are continuing to evaluate the next one,” Moniz said.
Moniz said the Department of Energy is continuing to look for ways to mitigate propane shortages in parts of the country that have caused prices of the heating oil to reach record highs this month.
“We are in direct communication with the Department of Transportation, the Department of Commerce, and the Domestic Policy Council at the White House so we can bring whatever we can to bear on this issue,” he said, adding that the Energy Department also has some authority to prioritize how propane is moved.
“I personally and many here at the Department of Energy have been on the phones every day to state governments, to state energy offices, to understand the situation,” he said.
The shortages have affected millions of Americans this month as brutally cold weather laid bare the vulnerabilities of the distribution network of a fuel used to heat homes, schools and businesses across wide areas of the United States.
Moniz spoke two days after President Barack Obama, in his annual State of the Union address, reaffirmed the administration’s “all-of-the-above” energy strategy, meant to develop a wide range of sources for domestically produced energy.
“Our job here, at the DOE, is to keep investing in all the technologies so that they can be competitive in the future market, where we expect there will be significant restrictions on carbon dioxide emissions,” Moniz said.
Existing science is more than adequate for establishing a base of action on climate change, he said.
“We have an economic obligation, we have a security obligation, we have an environmental obligation, and we have a moral obligation to work on this,” said Moniz.
“We believe we must show leadership if we are going to get the kind of international response that is ultimately required for us to meet a global threat.”
(Reporting by Ros Krasny; Editing by Sandra Maler and Lisa Shumaker)
Texas Vies With Saudi Arabian Oil in California Shipments
By Lynn Doan and Isaac Arnsdorf Jan 28, 2014 4:01 PM PT
Texas is poised to join Saudi Arabia as a supplier of oil to California as the mounting glut of crude on the U.S. Gulf Coast makes the trade profitable.
Kinder Morgan Energy Partners LP, the pipeline operator that’s buying U.S. oil tankers, said it’s in talks to ship Texas crude to California through the Panama Canal. The 4,500-mile voyage would cost about $10 a barrel, broker Poten & Partners Inc. estimates, making Texas crude competitive with imports traveling 11,400 miles from Saudi Arabia, the West Coast’s largest supplier, data compiled by Bloomberg show.
Until now, a U.S. law that makes domestic shipping more expensive left Californians buying oil from the Middle East instead. If a shortage of qualifying ships can be overcome, Texas crude will become affordable on the West Coast as the highest domestic output in a quarter century creates a surplus of light oil and drives down prices.
“The West Coast has been short crude over the last couple of decades with Alaska North Slope and California oil production down,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by telephone. “Getting more crude from other areas of North America into the West is going to help refiners, and if you have a big glut of light, sweet crude on the Gulf Coast, tankers will load.”
The posted price for light crude from Texas’s Eagle Ford shale formation has climbed 0.5 percent in the past year to $93.75 a barrel, according to the marketing division of Plains All American Pipeline LP. That compares with $99.73 for light Saudi Arabian crude and $97.23 for the equivalent Iraqi grade, plus $3.38 for shipping to the U.S. West Coast, according to data compiled by Bloomberg.
Shipping between U.S. ports costs more than international voyages in part because a 94-year-old law called the Jones Act requires domestic cargoes to travel on U.S.-built, -owned and – crewed vessels. A qualifying tanker commands record rates close to $100,000 a day, according to MJLF & Associates, a broker. That’s about 10 times more than a tanker of the same size that doesn’t meet the requirements, according to data from Clarkson Plc, the world’s largest shipbroker.
Using a Jones Act tanker may still beat the cost of transporting oil by train, said Court Smith, head of research at Poten in New York. Rail costs to Washington State from North Dakota’s Bakken field run at about $9 a barrel, while Alberta, Canada, to California costs $13 to $15, Valero Energy Corp., the world’s largest independent refiner, said in a Nov. 13 presentation. The company said it would consider the trade if it’s economical.
Crude-by-rail operations are facing more regulatory scrutiny after the derailment of a train carrying oil that killed 47 people in Quebec in July and a Dec. 30 explosion in North Dakota involving a train carrying Bakken crude.
“Rail is the most expensive, it takes a long time and obviously you can see clearly what happened over the last few weeks and few months of accidents,” Fadel Gheit, a New York-based energy analyst for Oppenheimer & Co., said in a Jan. 21 interview on Bloomberg Radio.
Kinder Morgan, the country’s second-largest natural gas pipeline operator by market value, agreed to buy APT New Intermediate Holdco LLC and State Class Tankers II LLC from private-equity firmsBlackstone Group LP and Cerberus Capital Management LP for $962 million in cash. Once final, the deal will give Kinder Morgan five Jones Act tankers and four more under construction, each able to carry 330,000 barrels, according to a Dec. 23 statement.
“Increasingly we’re talking to people, no firm commitments, who think that they will use Jones Act tankers, that have to be Jones Act, to take production out of Texas and move it through the canal and back up to California,” Richard Kinder, the company’s chairman and chief executive officer, said on a Jan. 15 conference call. Richard Wheatley, a spokesman, declined to elaborate.
Kinder Morgan’s net income will rise 31 percent to $1.3 billion this year, according to the average of 11 analyst estimates compiled by Bloomberg. Its shares will rebound from a 9.1 percent decline in the past year to gain 5.5 percent to $86 in 12 months, the average of 10 estimates shows.
The oceangoing Jones Act fleet of about 85 ships is fully booked, with no tankers available for one-time cargoes, said Pat Calahan, a broker and project consultant at MJLF in Stamford, Connecticut. The ships Kinder Morgan is buying from American Petroleum Tankers are all booked for several years on long-term contracts, according to a Dec. 23 company statement. The State Class ships are scheduled for delivery in 2015 and 2016.
The vessels are able to cross the Panama Canal, even before the $5.3 billion expansion that will double the waterway’s capacity. The project is scheduled to finish next year, with contractor Sacyr SA pledging to continue construction after threatening to suspend work unless the canal authority paid for cost overruns. The parties will continue talks until Feb. 1. The expanded canal could allow larger tankers to reposition from Alaska, according to Poten.
The Texas-to-California trade will be more feasible when there are surplus Jones Act tankers, Calahan said. There are 32 oceangoing tankers and 42 barges, plus 11 dedicated to shuttling between Alaska and the West Coast, and 16 more under construction, according to MJLF.
“There needs to be more length built into the Jones Act fleet before the industry takes a look at shipping to the West Coast,” Glenn Simpson, general manager of crude and international supply atPhillips 66, said Jan. 22 during a conference in Houston. Phillips 66 runs three refineries in California and Washington state that can process a combined 315,000 barrels a day. The company has used Jones Act tankers to send Eagle Ford oil to its 238,000-barrel-a-day Baywayrefinery in New Jersey.
Kinder Morgan has tried to move Texas oil to California before. The company shelved plans in May to build a pipeline that would have carried 277,000 barrels a day from West Texas’s Permian Basin to California’s refiners by late 2016. Citing lack of customer interest for the pipeline, Kinder Morgan said at the time that it would focus on rail projects instead.
There are no pipelines linking the Gulf and California. The last time a ship carried crude between the Gulf and West Coasts was in August 2012, Energy Department data through October 2013 show.
In the past six months, two U.S.-flagged tankers crossed the Panama Canal. Chevron Corp.’s California Voyager left Freeport, Texas, on Jan. 9 and was moored at the company’s Richmond refinery in Northern California, ship-tracking data compiled by Bloomberg show. The S/R American Progress, a Jones Act tanker owned by Exxon Mobil Corp.’s SeaRiver Maritime Inc., left Los Angeles on Jan. 5 and is anchored near Beaumont, Texas, signals show.
Spokesmen for Chevron and SeaRiver declined to comment.
The West Coast imports about 1.25 million barrels a day, with 24 percent coming from Saudi Arabia, according to October data compiled by the Energy Information Administration, the Energy Department’s statistical arm. Ecuador supplies 16 percent, with another 15 percent from Canada and 13 percent from Iraq, data show.
California’s daily output dropped from as much as 1.1 million barrels in 1986 to 547,000 barrels in October, Energy Department data show. Alaskan production slumped to 521,000 barrels a day from more than 2 million barrels a day in 1988. The state’s supplies are poised to rebound as the repeal of a production tax triggers investments that may boost output by at least 90,000 barrels a day within four years.
The West Coast’s reliance on imports contrasts with the country as a whole, which is meeting the largest share of its own energy needs since 1986, Energy Department data show. Nationwide production topped 8 million barrels a day in November and rose to the highest since 1988 as hydraulic fracturing and horizontal drilling unlock resources in shale rocks deep underground.
Because West Coast fuel producers can’t get that oil, their refining margins of $12.35 a barrel are lower than the $13.36 on the Gulf Coast, data compiled by Bloomberg show. A gallon of regular gasoline costs $3.486 on the West Coast and $3.092 on the Gulf Coast, according to the Energy Department.
The Gulf Coast may even have more domestic oil than it can handle because refineries are configured for heavier grades. The glut is leading to calls — from Senator Lisa Murkowski, the top Republican on the Energy and Natural Resources Committee, to the American Petroleum Institute, the oil industry’s lobbyist — to lift the ban on most crude exports. Moving Texas oil to California would provide another outlet.
“The West Coast is struggling through a decline in oil production and having that additional Eagle Ford oil there — what are the disadvantages at this point?” Taryn Slimm, an oil and gas analyst who covers U.S. unconventional plays for London-based GlobalData, said by telephone from New York. “It is an opportunity for the West Coast, and it’s going to relieve the projected glut that we have on the Gulf.”
Valero, which runs refineries in the San Francisco and Los Angeles areas, doesn’t ship crude through the Panama Canal to its California plants, “although we would certainly consider it if it made economic sense,” Bill Day, a spokesman at the company’s headquarters in San Antonio, said by e-mail Jan. 16.
The company is planning a complex at the 170,000-barrel-a-day Benicia refinery in Northern California that would allow the plant to unload as much as 70,000 barrels of crude a day from rail cars. The project is pending city approval.
Tesoro Corp., the largest refiner on the U.S. West Coast, leases space on Petroterminal de Panama SA’s Trans-Panama pipeline, Tina Barbee, a spokeswoman at company headquarters in San Antonio, said by e-mail. The 131-kilometer (81-mile) line can carry as much as 800,000 barrels of oil a day. She declined to comment on the Tesoro’s future strategies.
“Someone might say right now, ‘Let’s see if we can make this work,’” said David Hackett, president of oil consulting firm Stillwater Associates in Irvine, California. “Straight up, on a freight basis, Eagle Ford to California works.”