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California doubles oil-by-rail volumes as Canadian imports grow

LYNN DOAN

SACRAMENTO, California (Bloomberg) -- California more than doubled the volume of oil it received by train in the first quarter as deliveries from Canada surged.

The third-largest oil-refining state unloaded 1.41 MMbbl in the first quarter, up from 693,457 a year ago, data on the state Energy Commission’s website showed. Canadian deliveries made up half the total and were eight times shipments a year earlier. Supplies from New Mexico jumped 71% to 173,081 bbl. Those from North Dakota slid 34% to 277,046.

U.S. West Coast refiners including Tesoro Corp. and Valero Energy Corp. are developing projects to bring in more oil by rail from reserves across the middle of the U.S. and Canada to displace more expensive supplies. Crude production in PADD 5, which includes California and Alaska, has dropped every year since 2002 while drillers are extracting record volumes from shale in states including North Dakota and Texas.

The surging flows of domestic oil to California “reflect a continuing improvement in crude-by-rail receiving facilities here,” David Hackett, president of Stillwater Associates, an energy consultant, said by phone from Irvine, California.

Rail shipments still account for a small fraction of California’s oil demand. In February, the state imported more than 20 MMbbl of crude from abroad, data from the U.S. Energy Information Administration show.

Crude from North Dakota and Canada trades at a discount to Alaska North Slope oil, which rose 43 cents to $107.42 a barrel on May 1, data compiled by Bloomberg show. Western Canada Select, a heavy, sour blend, gained $1.53 to $82.52. North Dakota’s Bakken crude slid $1.57 to $94.92.

It costs $9 to $10.50 a barrel to send North Dakota’s Bakken oil by rail to California, according to Tesoro, the West Coast’s largest refiner.

Trains are bringing more to California even as projects face more regulatory scrutiny after a series of accidents involving rail cars carrying fuel. The most recent was on April 30, when a CSX Corp. crude train derailed in Lynchburg, Virginia, igniting a fire and triggering an evacuation. A derailment in Quebec last July killed 47 people.

The U.S. Transportation Department is studying changes to shipping oil by rail, and in February railroads agreed to slow such trains in urban areas. Canada ordered a phase-out of older tank cars last week.

City regulators said that they’re delaying an environmental report on a rail-offloading complex that Valero has proposed at its Benicia refinery in Northern California to June. The San Antonio-based company originally planned to finish the project by the end of last year.

Tesoro is six to eight weeks behind schedule in receiving regulatory permits for a rail-to-marine crude transloading terminal in Washington state, the company, also based in San Antonio, said. It now expects to receive the permits late this year or in early 2015, with construction taking about 12 months, Scott Spendlove, the CFO, said on a conference call with analysts.

Alaskan oil output has declined every year since 2002 as the yield from existing wells shrinks. Alaska North Slope crude production averaged 555,987 bpd in April, up from 546,087 a year earlier, data posted on the Alaska Department of Revenue’s website showed.

05/02/2014

 

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