August 27, 2009 / 10:05 PM / in 8 years

UPDATE 1-Tesoro moves oil to Pacific on reversed Panama line

3 Min Read

(Adds company explanation, trader comment, paragraphs 5-12)

HOUSTON, Aug 27 (Reuters) - Tesoro Corp (TSO.N) has shipped its first barrels of crude oil from the Atlantic to the Pacific Basin on a reversed Panama pipeline, the company said on Thursday.

Reversal of the 81-mile (130 km) Petroterminal de Panama pipeline, which formerly flowed from the Pacific to the Atlantic, creates a new oil conduit from the Atlantic to the Pacific and gives Tesoro access to more crude for its refineries in California, Washington, Hawaii and Alaska, the company said.

"In addition to exposing Tesoro to an array of crude oils typically marketed in the Atlantic Basin, our abilities to utilize the tankage dedicated for Tesoro's exclusive use at PTP and the reversed pipeline are expected to afford our company strategic advantages related to freight, storage, blending, and delivery scheduling optimization," said Doug Koskie, vice president of arbitrage trading for Tesoro Refining and Marketing Company.

The first oil through was Castilla blend from Colombia, which will be refined in California, Koskie said.

Tesoro offered no comment Thursday beyond the statement issued on behalf of Koskie.

Traders for other companies saw several potential commercial advantages for Tesoro, even though Panamax tankers also can carry oil through the canal.

"The U.S. Gulf Coast tends to be the area of last resort so there is opportunity to pick up cheap barrels, but they typically come in Suezmax or VLCC vessels," a trader said. Suezmax and Very Large Crude Carriers are too large to transit the canal.

"The U.S. West Coast is short crude so they can bring a variety of crudes through the pipeline and potentially offer others to share or sell to," the trader said.

"West Africa, Arabian Gulf and North Sea crudes could displace imports from other regions to the U.S. West Coast," another trader said.

The new flow of crude also would tend to keep Alaska and California crude prices in line with the broader market, traders said.

When Tesoro announced the agreement to use the PTP pipeline in December 2008, it said it would "allow Tesoro to economically deliver crude oils produced in Africa, the Atlantic region of South America and the North Sea to the company's five Pacific Rim refineries."

At the time, Tesoro said it leased tankage from PTP, planned to build more tanks on both coasts of Panama and that it agreed to ship 107,000 barrels per day of crude through the line under a seven-year agreement.

Tesoro is a leading independent producer of petroleum products, such as gasoline and diesel, in the western United States, including Alaska, and its seven refineries have a total capacity of 660,000 barrels per day. (Reporting by Bruce Nichols; Editing by David Gregorio)

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