In the third try in more than 25 years, a new California crude oil pipeline will be built to Los Angeles-area refineries after winning tough legal challenges-at the same time other competitive transport options are expanding.
It was a gamble taken on by Anschutz Corp., Denver, which is fully funding the Pacific Pipeline System Inc. (PPSI). Anschutz apparently has succeeded where others failed, including Shell Oil Co.'s pipeline proposal in the early 1970s and the Angeles Pipeline project proposed by a group in the mid-1980s.
Deciding moment
The deciding moment came Apr. 23, when the most persistent opponent, the Los Angeles City Council, voted 9-2 to drop a 7-year legal battle (OGJ, Oct. 14, 1996, p. 32). The council-which previously had opposed the pipeline by 10-2 votes-was up against a January Superior Court decision giving PPSI eminent domain powers to secure rights-of-way in the city.
The settlement preserves benefits offered by PPSI to the city, including a state-of-the-art fiber optic system along the route to improve emergency communications and donation of 150 computers to schools and non-profit groups, in addition to an estimated 600 new construction jobs and about 25 permanent jobs.
PPSI now has a clear path to build its $165 million, 132-mile crude oil pipeline designed to carry 130,000 b/d of Offshore California and San Joaquin Valley (SJV) crude oil to six Los Angeles-area refineries. Although some minor site work was done in March and April, the official start date is June 1, the kick-off to laying five pipeline spreads. The company is targeting a Mar. 1, 1998, completion.
The insulated, 20-in. pipeline will connect to the All-American Pipeline (AAPL)-which extends from the California coast at Santa Barbara to Texas-at Emidio in Kern County, Calif., and extend mostly along existing utility corridors in urban areas to refineries.
Competition
During the last few years that it was battling local opposition, PPSI also had to contend with competition from Cajon Pipeline Co., which joined with Southern California Edison Co. (SoCalEd) to propose a rival 20-in. pipeline from an AAPL connection to an existing SoCalEd system no longer needed to supply power plants.
But the Cajon plan was not the one favored by the California Public Utilities Commission, which declared "major disadvantages" of higher energy consumption for pumping and heating, more air pollution due to longer transport distance (286 miles), and "smaller pipeline diameters and the lack of insulation on the much older (SoCalEd) system" (OGJ, July 15, 1996, p. 20).
PPSI also lost up-front financing from four major oil companies (Chevron Corp., Texaco Inc., Exxon Corp., and Unocal Corp.), leaving Anschutz to foot the whole bill.
Still, Chevron, Texaco, and Exxon have signed throughput agreements, making it economically feasible, PPSI officials believe, and negotiations are continuing for other producers. The tariff will be about $1-1.10/bbl for those signing agreements.
Market overview
The struggle to gain a piece of the California oil transportation market is sparked by rising demand set against a backdrop of diminishing streams of Alaskan North Slope (ANS) crude, lack of additional offshore development projects, limited tanker options, higher-cost truck and train transport, and a new ability to export California oil.
Development of Santa Barbara Channel and Santa Maria basin offshore oil, currently averaging production of about 140,000 b/d, helped drive the need for a new pipeline because state and local governments oppose increased tankering. And as oil prices continue to remain robust, San Joaquin Valley crude output also is increasing.
Furthermore, Los Angeles area refiners have spent more than $2 billion to reconfigure their plants to process increasingly lower-gravity California crude while at the same time producing reformulated gasoline for the world's largest market and toughest air emissions regime in southern California.
While PPSI was struggling, Unocal built a 70,000 b/d train-loading facility for SJV crude connecting to AAPL in Kern County to move crude to Los Angeles refineries. At the same time, ARCO Pipeline Co. upgraded its existing Line No. 63 and also intends to reverse flow of its Line No. 90, which currently carries Alaskan crude.
In February, ARCO and AAPL signed an agreement to transport SJV crude to Los Angeles refineries by reversing Line 90 flow and opening up room for transporting another 70,000 b/d.
Bottleneck easing
Thus, the crude oil bottleneck plaguing California producers (OGJ, May 23, 1994, p. 34) may finally be eased, but with increased competition.
Pipeline capacity was cut by 50,000 b/d when ARCO's Line No. 1 was damaged by the January 1994 Northridge earthquake, sparking a competitive rush to fill the gap, especially critical because California opposes tankering.
At least one existing transport option will be abandoned once PPSI is built-Chevron's El Estero terminal in San Luis Obispo County.
Also, Exxon should have a tougher time convincing the state and federal Minerals Management Service it has the right to tanker its Santa Barbara Channel crude to Los Angeles from its port in the San Francisco Bay area.
PPSI's achievement
PPSI's 7-year feat entailed achieving about 3,800 individual permits through eight cities, two counties, and federal wilderness plus financing a speculative pipeline system that bore a seemingly jinxed history during 3 decades.
"The third time is a charm," said the company's vice-president, Jim Shamus, pointing to "market forces and economics" as key factors in its success.
A veteran of the two previous California pipeline wars, Shamus said the difference between then and now was "the advent of discoveries offshore Santa Barbara," higher prices that encouraged more SJV crude production, declining Alaskan production, Los Angeles refineries "spending $2 billion for refining heavier crude oil and reformulated gasoline," and the ability to compete with other, heavier crudes from Venezuela and Mexico, among others.
Shamus said about two thirds of the pipeline's capacity will be SJV crude and a third from offshore Santa Barbara via connections with AAPL.
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
