UPDATE 2-Alon aims to move light Midwest crude to Calif by rail

Thu Aug 9, 2012 1:16pm EDT

* Alon seeking to add flexibility to crude supply

* Project to use of existing lines, new rail facilities

* Alon expects to start rail system in second half of 2013

By Kristen Hays

HOUSTON, Aug 9 (Reuters) - Alon USA Energy Inc is in "advanced discussions" to move cheap inland U.S. light crude to its California refining system via new rail facilities and existing pipelines, Chief Executive Officer Paul Eisman told analysts on Thursday.

"This project will provide additional crude flexibility for our California refining system to allow us to take advantage of changing crude oil markets," Eisman said during Alon's second-quarter earnings conference call.

"We have tankage and land available to support the project and we have access to third-party pipelines," he said.

He said the company expects to submit applications for the necessary environmental permits "within the next few days" and aims to complete rail facilities by the third or fourth quarter next year.

Alon's three plants in California operate as one 84,500 bpd unit that produces refined fuels, asphalt and other petroleum products.

Alon is joining a growing trend among coastal refiners of using rail to gain access to cheap inland crude, where production is up but pipeline infrastructure is lacking to get it to refining hubs.

Tesoro Corp expects to start up a new rail facility that can bring in up to 50,000 barrels per day of North Dakota Bakken crude to its 120,000 bpd Anacortes, Washington, refinery next month. BP Plc is considering a similar setup for its 225,000 bpd Cherry Point refinery in Blaine, Washington, and Phillips 66 is looking at moving Bakken crude via rail to its 100,000 bpd Ferndale, Washington, refinery, as well as increasing Bakken rail shipments to its 238,000 bpd Bayway refinery in Linden, New Jersey.

Eisman said on Thursday that Alon would "more likely than not" start with Bakken crude as well, but declined to provide many details. He said the company was looking at a "unit train concept" with a new rail terminal and the expected volumes shipped would be significant.

"We are going to be flexible and bring in whatever crude provides us with the maximum margins," he said.

Eisman also said Alon had no maintenance planned for its refineries in the third quarter.

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