Los Angeles rejects third crude oil pipeline

Los Angeles has again rejected a proposal for a new crude oil pipeline through its jurisdiction-the third such project rejection since 1976.

Pacific Pipeline System Inc. (PPSI) owners are going to court to fight the Oct. 1 rejection to save its plan for a 132-mile, 130,000 b/d insulated oil pipeline from inland California to six Los Angeles area refineries.

Meanwhile, another option for transporting southern California crude oil has emerged as PPSI struggles to stay alive.

Pacific Pipeline's last stab

PPSI Vice Pres. Jim Shamus said the company will go ahead with condemnation proceedings, filed Sept. 18, that would allow a pipeline through city limits despite the Los Angeles City Council's 10-2 vote against it. The Los Angeles portion of the route is only 9.5 miles, but if court challenges ultimately fail, that would kill the project.

A Superior Court judge is to rule on PPSI's request Oct. 17, and if the decision supports the city, Shamus said PPSI would proceed to the Court of Appeals, but if that body rejects it, "I'd say we'd be finished."

If that occurs, it would be the third pipeline proposal blocked by L.A. since 1976. Shell Oil Co. proposed such a pipeline then, followed by the Angeles pipeline proposal by a Chevron Corp. group a decade later, both of which were dropped due to Los Angeles-based opposition and court challenges. Other cities, counties, and federal jurisdictions have already given PPSI the go-ahead, notably the California Public Utilities Commission (CPUC), which ruled it was the "environmentally preferred" alternative to tankering and competitors' proposals.

New transport facility

Noteworthy among other new oil transportation options in southern California is Unocal Corp.'s current construction of a new 70,000 b/d train loading facility that will connect with the All-America Pipeline (AAPL) in Kern County for transport to Los Angeles area refineries.

"In view of falling California production, the Unocal project, in conjunction with ARCO's recent Line No. 63 upgrades, can provide all of the near-term transportation capacity needed by California producers, shippers, and refiners," Keven Strege, AAPL's manager of operations, said. The train loading facility/pipeline interconnect agreement was signed last month.

PPSI woes

In another development generally blamed on long delays in getting the PPSI plan permitted, the last of four oil companies-Chevron, Unocal, Texaco Inc., and Exxon Corp.-have withdrawn their upfront financial support-Exxon in 1993 and the rest more recently-leaving Anschutz Corp. as its major financial backer.

However, Shamus said PPSI has long-term shipping agreements with Chevron, Texaco, and Exxon "and the three of them make the pipeline more than economically viable."

The oil companies backed out largely because of increasing costs and delays in changing and permitting PPSI's plans, which originally was proposed in 1991 and slated to begin operating in 1994. Now, "we're shooting for a July 1997 operation," Shamus said.

PPSI is intended to carry both California Outer Continental Shelf Oil-via a connection with AAPL-and San Joaquin Valley crude to Los Angeles area refineries. The volumes would split one-third OCS, two-thirds SJV.

Shamus, who was involved in the other two pipeline proposals, remains optimistic that the courts-and the crude oil market-will back PPSI's proposal, citing solid support from the CPUC and other jurisdictions that favor a new, state-of-the-art pipeline that can better withstand earthquakes.

"We tried for 41/2 years to work with the city," Shamus said, with PPSI modifying scores of details to satisfy the council, but holding fast on two final matters: L.A. insisted on putting the route segment up for bid to competitors and assessing PPSI 2% of gross revenues. Neither demand was acceptable to PPSI, and both will be matters for the courts to decide.

Despite all its setbacks, PPSI is asking for bids from contractors and tying up line pipe supplies, hoping it can start construction by yearend.