Chevron Corp. and partners have given a green light to a midyear 1991 start-up of giant Point Arguello oil field off California despite their inability to win a tanker permit to move the oil to Los Angeles.
Instead, 20,000 b/d of Point Arguello crude will move via onshore pipeline to California refineries outside the Los Angeles area.
The project is permitted to produce as much as 100,000 b/d of crude, a volume Chevron pointed out is equal to about half the U.S. imports of Kuwaiti crude before Iraq invaded that country. At a likely minimum reserve of 300 million bbl, it is the biggest commercial oil field found in U.S. federal waters.
WHAT'S INVOLVED
Arguello crude will move via the existing Point Arguello onshore pipeline to the Santa Maria, Calif., area where some volumes likely will be used at Unocal Corp.'s small Santa Maria refinery.
The remaining Arguello crude will move through Unocal's pipeline to Kern County, Calif., with some volumes possibly used at Texaco Inc.'s Bakersfield refinery. The rest would move through a Unocal line to Unocal's Rodeo refinery or a Texaco line to Texaco's Martinez refinery, both in the San Francisco Bay area.
Chevron hopes to accelerate its timetable to reactivate the three platforms, onshore and offshore pipelines, onshore oil and gas processing plants, storage tanks, and marine terminal associated with the project.
Chevron earlier said demothballing could take as much as 6 months, with another 6 months to build production to minimum expected peak of 75,000-80,000 b/d.
BACKGROUND
The $2.5 billion project has been mothballed for 3 years because of environmental opposition.
The most recent roadblock has been Santa Barbara County's opposition to even interim tankering of Point Arguello crude while the 18 company Chevron group pursued a new onshore pipeline project that was 3-4 years away.
The county had rejected the Chevron group's latest compromise proposals, which included using double hulled tankers and putting up a performance bond of as much as $50 million to be forfeited if the group was not moving oil via pipeline after 4 years.
Chevron and partners maintain that using existing pipelines to Los Angeles is not economically feasible, calling for the heavy crude to be blended with scarce diluent in Kern County and shipped via existing lines to Los Angeles.
The county also rejected that argument. It earlier approved interim tankering, but that permit was rescinded on appeal before the California Coastal Commission (CCC) by the League of Women Voters and the environmentalist group Get Oil Out following the Exxon Valdez tanker spill off Alaska last year.
The U.S. Department of Energy recently stepped into the fray as a result of increasing energy security concerns following Iraq's invasion of Kuwait.
DOE's compromise called for 20,000 b/d of Arguello crude to move via pipeline to refineries other than those in Los Angeles with the rest to move by tanker to Los Angeles, Arguello partners to pursue a pipeline option in the interim, and all tankering to halt after 4 years even if no pipeline is available (OGJ, Nov. 19, p. 34). Chevron and partners agreed to the compromise, but the county rejected that as well.
Chevron and partners are appealing the county's latest permit rejection to CCC.
RATIONALE
A Chevron official said benefits from early start-up include generating some cash flow from the long stymied project and putting the project in a position to ramp up production fairly quickly if CCC rescinds the county's permit denial.
Prior to the runup in crude prices that began last summer ahead of the Middle East crisis, Point Arguello crude might have sold for $8-9/bbl, the official said. It could sell for as much as $18-19/bbl now, he said.
"But once this crisis is over, the price of Arguello crude could go in the toilet again. We obviously did not spend $2.5 billion on this project with the intention of producing only 20,000 b/d.
"Despite what the cynics may choose to believe, Point Arguello partners are taking this step largely in response to President Bush's call to increase domestic production during the crisis."
CHEVRON'S STANCE
In a letter to DOE Sec. James Watkins, Chevron Chairman Kenneth Derr said that, consistent with commitments made to DOE in its efforts to secure a compromise, Point Arguello partners are willing to do their part to respond to Bush's call for increased U.S. oil production.
Derr criticized Santa Barbara County's insistence that a proposal by All American Pipeline Co. and Four Corners Pipe Line Co. to move Arguello crude is economically feasible. It entails building a 3 mile spur between systems to accommodate limited volumes of blended Arguello crude to Los Angeles .
"Officials in Kern County, where the blending connection would be required, have already criticized that scheme as posing environmental and economic impacts that are excessive and unfair," Derr said.
"It would require either stealing light crude from the San Joaquin Valley already used for blending-resulting in refinery shutdowns and shutting in heavy crude production there-or importing blending stock on tankers and trucking it over Los Angeles freeways to Kern County.
"These options provide no environmental benefit, pose unnecessary public safety risks, and don't enhance domestic energy production."
Copyright 1990 Oil & Gas Journal. All Rights Reserved.