Bob Williams
Senior Staff Writer
The saga of getting giant Point Arguello field on stream off California has taken new twists and turns.
Cajon Pipeline Co., Cypress, Calif., has proposed a 122 mile, 20 in., 150,000 b/d heated crude oil pipeline in southern California to move heavy crude from Offshore California and San Joaquin Valley oil fields to the Los Angeles basin.
Cajon late last month filed an application with the Bureau of Land Management for a grant of right-of-way. A joint review panel was expected to begin work on an environmental impact statement under federal law and an environmental impact report under California law.
The pipeline could be on stream by early 1993 at a cost of $103 million, sponsors say. It also could provide a solution for the long delayed start-up of Point Arguello, a $2 billion project that has been stymied for 3 years. The problem is a dispute between Santa Barbara County and a group of companies led by Chevron Corp. over how Point Arguello crude can be moved to market.
CHEVRON PROPOSAL
In the latest development related to the Point Arguello impasse, the Chevron group has offered to post a performance bond with the county totaling as much as $50 million to demonstrate its commitment to participating in an onshore pipeline to Los Angeles.
Chevron and partners are seeking a permit from the county for interim tankering of Arguello crude to Los Angeles until a viable onshore pipeline is available.
The county has insisted that offshore crude be transported via onshore pipeline and earlier approved an interim tankering permit for the project. That permit was overturned by the California Coastal Commission (CCC) on appeal by the League of Women Voters and Get Oil Out (GOO).
Chevron and partners then filed for a new interim tankering permit. County supervisors will decide this week whether to approve the new permit.
PIPELINE DETAILS
The Cajon pipeline would extend from a point 27 miles west of Barstow, linking Goodyear Tire & Rubber Co.'s existing All American Pipeline (AAPL), which runs to Texas, with the GATX crude terminal at Carson, Calif.
The line would have, in addition to two pump stations, a 750,000 bbl terminal near the AAPL 12 Gauge Lake pump station.
Cajon Pres. Ron Hinn estimated permitting time at 1213 months, construction of all facilities at 1 year, and testing and start-up in first quarter 1993.
During second quarter 1993, the line could be transporting 80,000-100,000 b/d of Outer Continental Shelf crude from Point Arguello and Santa Ynez Unit (SYU) fields and another 40,00050,000 b/d of heavy crude from the San Joaquin Valley (SJV), Hinn said. Those crude volumes would be delivered via AAPL to the Cajon system at the Cajon 12 Gauge terminal, then to the GATX terminal, which in turn is linked with 15 refineries in the Los Angeles basin.
Hinn, former AAPL president, contends there is ample justification for the line.
"There are no direct pipelines or pipeline connections with sufficient capacity or the ability to transport the additional heavy OCS or SJV crude in its neat state to a Los Angeles refinery destination," he said.
The squabble between the Chevron group and Santa Barbara County was further complicated last year after AAPL and Four Corners Pipe Line Co. proposed a complex scheme to move Point Arguello crude via AAPL to AAPL's Pentland pump station for blending and further transport via a new 3 mile spur to Four Corners' system to Los Angeles.
Chevron criticized that proposal as unwieldy and uneconomic and started studies of a coastal route from onshore treating facilities at Gaviota to Los Angeles along the Southern Pacific Railway right-of-way (OGJ, Dec. 18, 1989, p. 14).
OTHER VOLUMES
Hinn also noted added volumes of crude production off California will be looking for a home in the Los Angeles basin when two new platforms in the Santa Ynez Unit in the Santa Barbara Channel boost unit production.
He cited statements by SYU operator Exxon Corp. that it will ship half-40,000 b/d-or more of its SYU production to Los Angeles when the new platforms go on stream in 1993.
"By 1993," Hinn said, "95,000 b/d of Point Arguello and Santa Ynez crude oil will require transport to Los Angeles, and by 1995 this volume will increase to 105,000 b/d. "
He also pointed out that Shell Oil Co. is shipping 40,000 b/d of SJV crude to its Los Angeles refinery via unit train from Bakersfield, Calif.
"With the introduction of additional enhanced oil recovery as gas volumes become available in the San Joaquin Valley, production of SJV heavy is expected to increase significantly," Hinn said. These volumes are expected to be tendered to the pipeline system for transport to the Los Angeles market."
Local crude sources will become more critical this decade as Alaskan North Slope (ANS) crude production continues to decline, Hinn pointed out.
"By the mid-1990s, ANS movement to other PAD districts will be eliminated, and the West Coast will become a net crude importer," he said.
"The desire of OCS and SJV producers to ship their production to Los Angeles, the decline in ANS crude production, the price differential for OCS and SJV crude on the West Coast vs. the Gulf Coast, the Exxon Valdez and ... American Trader tanker spills, together with the denial of a marine tanker option by the CCC, as well as political and public opposition to tankering has created an immediate need for a pipeline system capable of transporting OCS and SJV heavy crude production to the Los Angeles basin at a reasonable tariff.
"The AAPL-Cajon Pipeline joint tariff to Los Angeles, together with the tariffs of connecting carriers and local terminal costs, will deliver OCS crude oil to the Los Angeles basin at a competitive tariff and will have additional standby capacity to transport any increased production levels."
CAJON STRATEGY
Hinn's strategy is to obtain permits for the project first, then obtain deficiency agreements followed by throughput commitments from producers before obtaining financing for the project's capital costs.
"We have the financing to carry us through the permit stage," he said. "Later, we may go public or seek joint interest partners."
Hinn is confident of obtaining permits for the project, which skirts much of the most sensitive urban routes covered by the defunct Southern California Pipeline System, a project backed by OCS and SJV producers in the early 1980s that was sunk by a blizzard of lawsuits.
Because Cajon is not a refiner/marketer or producer, "we don't have the baggage the industry carries on a project such as this," Hinn said.
Much of the route parallels the so-called PacTex route sought in the 1970s by a predecessor of BP America Inc. and revived last decade by Pacific Texas Pipeline Co. Hinn thinks a coastal route would be much more difficult to get permits for.
"From the Pomona-Ontario area to GATX, we have two environmental impact statements covering this route," Hinn said.
Hinn also thinks the project's timing is right, given heightened concerns over U.S. energy security stemming from the Persian Gulf crisis.
BOND PROPOSAL
The Chevron group's proposed performance bond is intended to show "the doubting Thomases" opposed to interim tankering that the Point Arguello group is serious about a pipeline option.
"I'd call $40-50 million a rather significant commitment to be in a pipeline," a Chevron official said.
The performance bond is offered in exchange for allowing Chevron to use its double hulled tankers for a 4 year period. It establishes milestones during that period to determine reasonable progress toward a pipeline.
By November 1991, the Point Arguello group would have to determine a lead permitting agency and begin permitting steps. By November 1992, the partners would have to complete a draft environmental impact report.
By November 1993, construction of a pipeline would have to commence.
And by November 1994, the pipeline would have to be on stream.
If the first date is not met, the Chevron group begins kicking in 25/bbl of Point Arguello crude tankered from the Santa Barbara Channel to be deposited into an escrow account for the county. That amount is doubled if it misses the second deadline and doubled again if it misses the following deadline. During this time, the county is free to spend any interest earned from the account.
If the group does not meet the final deadline, all the money the account has accrued goes to a nonprofit resource conservation foundation to underwrite coastal conservation programs.
OTHER ISSUES
Chevron, federal, and Santa Barbara County officials were negotiating a resolution to the Point Arguello impasse in Santa Barbara last week.
In attendance at the negotiating session were U.S. Department of Energy Gen. Counsel Steve Wakefield, Chevron U.S.A. Inc. (CUSA) Pres. Willis Price, CUSA Senior Vice Pres. Ray Galvin, the county board of supervisors, and representatives of the county natural resources department.
A key question could be county approval that would have to hinge on a project that has not been through the permitting process.
"The Southern Pacific pipeline is in abeyance now," a Chevron official said. "They're concerned whether Point Arguello crude alone would generate enough revenues to make the project economic."
He said Exxon, currently tankering its SYU crude to Los Angeles from an offshore storage and treating vessel in the Santa Barbara Channel, has expressed no interest in the Southern Pacific project. Exxon is committed to shipping its increased SYU volumes to Texas through the financially troubled AAPL if the tariff is reasonable.
AAPL had an operating loss of $56.8 million in 1989 and average throughput of about 90,000 b/d of onshore California and ANS crude. In its 1989 annual report, Goodyear said the line's throughput is not expected to change significantly soon.
"Everybody assumed the SYU crude would be shipped to Baytown, Tex.," the Chevron official said. "But since the first of the year, Hondo field crude has been tankered to Los Angeles. So L.A. appears to the most attractive market for that crude."
Even if the county approves the new permit, the Point Arguello group's travails are not over. As with the earlier permit, opponents of tankering could again appeal to CCC for recession of the permit on environmental grounds.
"In our discussions with the league, we've gotten a positive response," the Chevron official said. "But GOO seems opposed to tankers in any shape or fashion or at any time."
Copyright 1990 Oil & Gas Journal. All Rights Reserved.