August 2, 2013 / 8:55 PM / 5 years ago

UPDATE 1-Tesoro says rail-to-barge oil port for entire West Coast

* Project requires final approval from state governor

* Other refiners could access crude from the facility

By Kristen Hays

HOUSTON, Aug 2 (Reuters) - A $100 million rail-to-barge oil terminal that Tesoro Corp plans to build at a port in Washington would help supply cheaper U.S. and Canadian crude to refineries all along the West Coast - both its own and those run by competitors.

The project, which would initially have capacity of 120,000 barrels a day and could be expanded to 280,000 BPD, is the biggest so far proposed to help Pacific Coast refineries tap growing output of inland U.S. and Canadian heavy crudes.

“The facility was designed to supply the entire West Coast,” Chief Executive Greg Goff told analysts during the second-quarter results call for the company, the fourth-largest independent refiner in the United States.

Tesoro owns four refineries on the West Coast and controls 24 percent of the crude oil refining capacity on the West Coast.

U.S. West Coast refiners are increasingly interested in tapping North American crude that is cheaper than imports, and some in Washington State have begun receiving barrels from North Dakota’s Bakken play by rail. Rapid growth of oil production in the United States and Canada has created a glut of crude in the Midwest. Infrastructure is rushing to catch up so crude can be moved to refining hubs.

The West Coast is the last region to tap into those flows, with California running behind its northern peers.

Last week, commissioners at the Port of Vancouver approved a lease for the Tesoro project, but other regulatory approvals loom before it can move forward. State Gov. Jay Inslee has the final say, port spokeswoman Theresa Wagner said.

Goff said on Friday that Tesoro is navigating that permitting process and is on target to be fully developed in “the better part of a year.”

The project, where North Dakota Bakken and Canadian crude would travel by rail to the marine facility in Vancouver, Washington and then barged to refining centers, is being planned with joint venture partner Savage Companies.

Tesoro has committed to the first 60,000 bpd of throughput, and the joint venture will offer the rest of the capacity to others. Tesoro can opt to seek more capacity if market conditions are favorable, the company said.

“We just targeted to come on with about 120,000 barrels a day, but we could ramp up very, very quickly to just short of 300,000 barrels a day, if the demand is there, not only from Tesoro but from anyone else,” Goff told analysts.

The Vancouver facility would be Tesoro’s second rail project in Washington state.

Nearly a year ago Tesoro began railing about 50,000 barrels per day to an offloading facility at its 120,000 bpd refinery in Anacortes, Washington. Other refiners with plants in the state, Phillips 66 and BP Plc have similar projects planned.

PENDING PROJECTS IN CALIFORNIA

In California, a pair of refiners also are seeking permits to build rail offloading facilities to bring in cheaper crude, but no permits have yet been approved in the state known for strict environmental rules.

Valero Energy Corp, the largest U.S. refiner, is seeking permits to build offloading facilities at its refineries near Los Angeles and San Francisco.

A planning commission had been slated to vote on whether to approve a 70,000 bpd rail facility at Valero’s 132,000 bpd Benicia refinery next week. It was postponed to September to allow more time to consider public comments, both for and against the project, according to the commission.

Regulators also are considering Valero’s permit request for a 60,000 bpd rail facility at its 78,000 bpd Wilmington refinery near Los Angeles, but in June the area pollution regulator said it would take 18 months to finish an environmental review, permitting and construction.

Alon Energy USA also is seeking permits for a rail facility at its Southern California refining system, which shut down late last year as losses mounted on high imported crude costs and low asphalt demand. The company hopes to get those permits by year-end.

Valero spokesman Bill Day on Friday declined to say whether Valero would be interested in tapping inland and Canadian crude through the Tesoro project, but noted that the company values flexibility in getting cheaper crudes to its refineries.

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