UPDATE 2-Tesoro says plan for Washington state crude railport delayed

Thu May 1, 2014 6:30pm EDT

* Construction now slated for late 2014-early 2015

* Delay due to state-required environmental impact study

* Project cost up to $150 mln-$190 mln, previously $100 mln (Recasts with length of delay, adds detail about project and oil by rail on U.S. West Coast)

By Kristen Hays

HOUSTON, May 1 (Reuters) - The start-up of a major Pacific Northwest rail-to-barge terminal that could bring hundreds of thousands of barrels per day of cheap North American crude to the U.S. West Coast will be delayed by at least a few months due to environmental requirements, the top executive at Tesoro Corp said on Thursday.

In addition, the cost for Tesoro's joint-venture project at the Port of Vancouver in Washington could be as much as 90 percent more than originally planned, Chief Executive Greg Goff said during the company's quarterly earnings call.

The project is seeking permits to handle up to 380,000 barrels per day.

The delay comes as opposition to the crude-by-rail movement, which is booming in tandem with the U.S. shale oil revolution, is gaining steam in the aftermath of several fiery crude train crashes and derailments since last summer.

On Wednesday 15 railcars on a CSX Corp crude train derailed in Lynchburg, Virginia, catching fire and spilling about 831 barrels of oil into the James River.

Tesoro and its partner, Savage Services, submitted environmental permit requests for the railport in August, and had expected the railport to start up in late 2014 or early 2015.

On Thursday, Goff said construction is now expected to begin in that timeframe. The railport will be able to begin running before the entire project is completed, with initial volumes arriving in mid-2015. The entire project will be completed a year after construction starts, he said.

The estimated cost of the railport also has risen, to a range of $150 million to $190 million, from about $100 million, Goff said. The cost will be split 50-50 between Tesoro and Savage.

Goff said the project delay is because the company is waiting for the state to provide it with requirements for an environmental impact study.

"We are in the window when the state will come out with their requirements for the EIS, and then we will comply with that," Goff said. "That has put us somewhere between six to eight weeks behind schedule."

He said the company can respond quickly when the state provides those requirements, and "it's the only delay that we've experienced so far."

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Tesoro led the charge on the West Coast when it came to tapping cheaper inland U.S. and Canadian crudes. The company in September 2012 started up an offloading facility at its 120,000 barrel-per-day refinery in Anacortes, Washington, which receives up to 50,000 bpd of North Dakota Bakken crude.

Other refiners have done the same or are trying, as no major pipelines move crude to the West Coast and rail has been the region's only way to substitute cheaper North American crude for more expensive imports.

The railport project would serve the entire West Coast, not just Tesoro plants, and be the largest crude-by-rail operation in the region by far.

While permits are seeking capacity up to 380,000 bpd, Goff has said actual volumes will hover around 300,000 bpd.

(Reporting by Kristen Hays; Editing by Nick Zieminski and Leslie Adler)

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