ACCORD NEAR FOR OFFSHORE CALIFORNIA OIL SHIPMENTS

There are faint glimmers of hope again for Offshore California operators.

After more than a decade of often bitter strife over offshore oil and gas development and transportation issues, state officials and oil producers may be moving toward compromise solutions. One such solution may be forthcoming on offshore development (see related story, p. 42). But the real change came with the turnabout of the California Coastal Commission (CCC), which last month approved a permit for interim tankering of crude from Point Arguello oil field in the Santa Barbara Channel to Los Angeles (OGJ, Jan. 18, Newsletter).

The dispute over how to ship Offshore California crude to market has dragged on since before Point Arguello development plans were unveiled. The project's status has become a flashpoint in the U.S. debate over resource use and environmental concerns.

The controversy flared anew in the wake of the 1989 Exxon Valdez tanker spill off Alaska, when CCC voided a Santa Barbara County permit for interim tankering, a move project operator Chevron Corp. linked to the Exxon Valdez accident (OGJ, Dec. 18, 1989, p. 14).

GOVERNOR'S BACKING

Faced with litigation, the state's economic devastation, and acrimonious debate over transporting California crude, Gov. Pete Wilson and other agencies approved the CCC permit.

But there's a catch: A permanent pipeline must be built to handle full production within 3 years.

Still, the decade long controversy has not yet ended. All 13 partners in the Point Arguello project must endorse the permit, while a coalition of environmental groups will shift its opposition to follow-up hearings by CCC and the State Lands Commission. Both agencies must rule on the Gaviota Marine Terminal (GMT) permit before any tanker can load.

The GMT lies in state water adjacent to the Point Arguello project. The CCC's Jan. 13 permit allows tankering only from GMT to 11 Los Angeles area refineries, banning all other ports from tankering Point Arguello crude as a way to reduce risk of tanker spills by limiting oceangoing routes.

If accepted, the permit will allow full production of as much as 85,000 b/d of oil from Point Arguello. The project has averaged only about half that amount since starting up in June 1991 because of limited capacity of existing pipeline systems.

PERMIT CONCERNS

Chevron will back the modified permit because "it's a reasonable compromise, given political realities," said Chevron Point Arguello Project Manager C.L. Blackwell.

The lower cost of tankering, even for a limited time, also is an incentive.

Based on information provided by producers, CCC staff said, "While producers are unlikely ever to recover their investment from the Point Arguello project regardless of the transportation method, tankering ... will at least enable them to recover the current fair market value of the crude oil and natural gas reserves."

Although the permit will last only 3 years and includes many caveats, it is less restrictive than a permit granted by Santa Barbara County last August-refused by Chevron because it required the 13 partners to sign a binding pipeline agreement before tanker shipments could begin.

In its controversial 7-4 vote, currently on appeal, CCC modified the county's permit, deciding it would allow tankering as early as April. Still, a binding pipeline contract would have to be signed by Feb. 1, 1994.

TURNAROUND DECISION

The CCC decision was a turnaround for the commission, which previously upheld county decisions designed to require full transportation by new pipelines as well as reversing the 1989 county tanker permit.

The compromise was sparked by intervention of Wilson and affected state agencies early last year, in a "facilitation process to resolve the various disputes regarding short and long term transportation of Santa Barbara OCS crude," said the CCC staff report. Loss of potential government revenue, full production of Point Arguello's oil, and fewer tanker miles were cited as benefits.

Wilson also issued a statement lauding the decision, calling it a "courageous stand" that offers "strong, long term protection for California's pristine coastline and solid jobs for hundreds of Californians."

Wilson pushed for compromise because Chevron is using pipelines to take some of the production north to Martinez and loading it onto tankers for transport past Santa Barbara County to Los Angeles refineries. That means tankers travel 459 miles, putting more of the state's coastline at risk of an oil spill, instead of only 170 miles from GMT to Los Angeles.

The commission's permit sets a deadline of Jan. 1, 1996, to stop all tanker shipments whether or not new pipelines are built.

Also, Point Arguello partners must use pipelines for the first 40,000 b/d, drop four major lawsuits against state and local agencies for previous permit actions, expand a vessel traffic radar system, create a tanker oil spill plan, and fund an environmental inventory of habitats along the tanker route.

Also, if Point Arguello producers miss certain "milestones" erected to ensure progress toward full pipeline transport, tanker loading would be reduced or halted.

GREENS ANGRY

CCC's action angered a Santa Barbara environmentalist coalition.

Linda Krop, the coalition's attorney, charged that Chevron repeatedly has broken its promises to ensure pipelines are built to take full production.

In fact, Chevron and ARCO led a group of companies in the early 1980s to build the Southern California Pipeline System, a project to move San Joaquin Valley and OCS crude to Los Angeles area refineries. The project died because of environmentalists' opposition and lawsuits by municipalities along the route.

The fatal flaw of the 1989 county permit was a misunderstanding. The county believed Chevron would promise to build an onshore pipeline to move OCS crude to market, while Chevron repeatedly said it had promised only to try to build or use a pipeline that was economically feasible. Chevron said at the time it was never spelled out in the 1989 permit that building a pipeline was a condition of the permit.

Krop believes the permit "sets a horrible precedent" because Exxon Corp. also has applied for tanker transportation of expanded production from its Santa Ynez Unit, due to go on stream late this year for production of as much as 100,000 b/d.

Nor does the state's permit have as many incentives as the county's to build a new pipeline to Los Angeles, Krop said, contending it hinges on participation by Exxon.

PIPELINE PROPOSALS

There are three proposed new pipelines that could end the need for tanker shipments.

Chevron's preferred project is one proposed by Pacific Pipeline Co. (PPC), a $225 million, 170 mile fine that would run mostly along existing railroad rights-of-way to Los Angeles (see map, OGJ, Apr. 8, 1991, p. 26). Exxon also is involved in the PPC project. PPC is a unit of Southern Pacific Transportation Co., Denver. Now under environmental review, PPC expects to have all permits in hand by yearend and take at least 17 months to construct.

Two other pipeline proposals could come on line earlier, however, and both involve tying into the existing All American Pipeline that extends from Santa Barbara to Texas.

One involves reversing flow of Four Corners Pipeline Co.'s Line 90, currently used to take Alaskan North Slope crude east, from Los Angeles to Cadiz, Calif. Four Corners Gas Transmission Co. in 1991 announced it was developing a proposal to convert about 385 miles of Line 90 between the California border and Utah and 81 miles of Line 92 between Utah and New Mexico to gas from crude oil service (see map, OGJ, Apr. 29, 1991, p. 32).

The other AAPL tie-in is a 142 mile, 20 in., 150,000 b/d heated crude oil pipeline project to move Offshore California and San Joaquin Valley crude to the Los Angeles basin (see map, OGJ, Nov. 12, 1990, p. 34). Sponsor is Cajon Pipeline Co., Cypress, Calif.

Exxon, hoping to spread its options, is providing some financing for Four Corners' proposal but not Cajon's. Exxon earlier said it was committed to shipping increased Santa Ynez volumes to Texas through the financially troubled AAPL-running at about one third of capacity-if the tariff is reasonable. For now, it continues to ship crude from the Santa Ynez Unit's Hondo field by tanker to Los Angeles.

CCC's jammed Jan. 13 hearing in Santa Monica, Calif., was marked by opponents citing recent tanker spills off Scotland and Spain. The permit recognizes that in a warning: If a Point Arguello tanker spills more than 1,000 bbl during the 3 year period, all tanker shipments must halt immediately.