Oil prices don’t seem to be moving up. But that isn’t stopping big oil corporations from looking ahead to the time when a barrel of crude will be back at its previous selling level.
Tesoro Corporation, a Fortune 100 and a Fortune Global 500 company headquartered in San Antonio, Texas is looking towards the future when oil will be back in favor and is pushing a plan to bring energy infrastructure to the West Coast where it has been sorely lacking.
(The) Tesoro Corporation… is looking towards the future when oil will be back in favor and is pushing a plan to bring energy infrastructure to the West Coast where it has been sorely lacking
Through a joint venture with Savage Companies, a supply system provider out of Utah, Tesoro has begun converting a 42-acre site at Washington's Port of Vancouver into one of the largest crude-by-rail terminals and offloading facilities in the country. The two corporations first sealed the project back in April 2013 and plans were drawn up to use the facility to move crude from "advantaged North American sources" - such as North Dakota's Bakken shale oil play and Canada – to the port where Tesoro ships would take it it to its three West Coast refineries.
The $75 million to $100 million facility was expected at the time to be operational in 2014, and last year Tesoro started up a new offloading facility at its 120,000 bpd refinery in Anacortes, Washington, about 244 miles north of Vancouver and began railing in 40,000 bpd of North Dakota Bakken crude.
Engineers Delay Plan
However, as recently as June 2015, Tesoro’s plan faced a major delay after the U.S. Army Corps of Engineers decided to conduct a close review of the project and take a hard look at the impacts of the Tesoro Savage oil-by-rail terminal.
No decision has yet been made. If approved, the Vancouver Energy terminal would receive up to 360,000 barrels of domestic crude daily, arriving on trains run by Berkshire Hathaway's BNSF Railway. The oil would be stored in above-ground tanks on the property, then loaded onto tanker ships and make their way down the Columbia River and out to refineries along the coast.
The first 60,000 barrels would be reserved by Tesoro for its own refineries in Washington and California and the remaining 300,000 barrels of capacity would be commercially viable and energy companies could pay to utilize the facility, which will be operated by Savage.
As of today, the Vancouver Energy Terminal whose construction came in at $210 million, is capable of receiving up to four "unit" trains transporting 100 to 120 cars filled with oil per day.
Only Way to Do it
Keith Casey, executive vice president of operations at Tesoro, says that the company is determined to bring North American crude to west coast refineries and that this undertaking is the only way to do it.
The most natural way to transport oil is via pipelines. However, the region's pipelines are already operating at full capacity and there are no plans to construct new ones. Rail as the only option remaining that could benefit refiners in the region. According to the Energy Information Agency (EIA), crude by rail to the West Coast climbed from an average of 23,000 barrels per day in 2012, to 157,000 in 2014.
West Coast refineries, those in Washington state in particular, once received most of their oil from Alaska, but the Alaska North Slope now produces only about 500,000 barrels per day, down from just over two million barrels per day at the peak in 1988. California's production has also dropped and is down to about 550,000 barrels from 1.1 million in 1985.
Reliance on Imports
The result is that the West Coast has been heavily relying on imports to compensate for the falloffs, primarily Saudi Arabia, Iraq, Canada, Ecuador and Colombia. According to the EIA, imports to the area have increased to an average of 1.1 million barrels per day over the past five years, from 200,000 in 1990.
As Tesoro awaits regulatory approval for his energy terminal, other companies, such as Royal Dutch Shell, are eager to jump into the fray and have crude-by-rail proposals currently under review.
Tesoro is not worried about the competition and confident that its project will get the green light. A recent DHM Research survey found that nearly 70 percent of area residents support the terminal for its expected economic benefits which a Vancouver Energy-bankrolled analysis suggested could be as much as $2 billion.
For oil prices to move upwards globally, the U.S. must limit the import of oil from outside the country and put the brakes on the depletion of Middle East oil stockpiles. Tesoro’s energy terminal could bring the country one step closer to that goal.