HOUSTON (Reuters) - WesPac Energy has scrapped plans to build a San Francisco-area oil terminal because too few customers were willing to commit to volumes with crude prices at 7-year lows, the project manager said on Thursday.
“Without the customers, the economics just weren’t there,” Art Diefenbach said about WesPac Midstream LLC’s project in Pittsburg, California, near Tesoro Corp’s 166,000 barrels per day (bpd) Golden Eagle refinery in Martinez.
On Thursday U.S. crude futures settled at $36.76 a barrel, down 65 percent from mid-2014.
WesPac first proposed the project in 2011 to receive, store and transfer crude between trains, vessels and pipelines at a new $200 million terminal. The cost fell to $150 million this year when WesPac cut rail out of the project on safety concerns voiced by opponents after multiple fiery crude train crashes.
Even so, railed crude might not have worked in the current market. As prices fell in the last year and a half, discounts of North Dakota Bakken and other inland crudes to U.S. oil prices narrowed, siphoning oil-by-rail’s profitability.
According to the California Energy Commission, California oil-by-rail shipments hit a high of 20,075 bpd in May 2014 and were down by 61 percent to 7,801 bpd in September this year.
Even after WesPac eliminated rail from the project and re-submitted permit applications earlier this year, the continued oil rout diminished customer interest.
Diefenbach said customers were not willing to make long-term commitments to WesPac’s terminal, given uncertainty of where crude prices will go given global oversupply.
And California projects - WesPac’s and others - have faced years-long reviews and environmental impact studies. Oil markets changed in those intervening years after the Organization for the Petroleum Exporting Countries declined to cut output a year ago and again last week.
WesPac had an option to buy the land and tanks for the terminal from NRG Energy Inc, but it would expire “at some point,” Diefenbach said. WesPac could not just put the project aside to resurrect at its discretion without owning the property.
“We just decided it was time to move on,” Diefenbach said.
Reporting By Kristen Hays; Editing by Terry Wade; Editing by Diane Craft