Refinery rail project would ease crude oil supply concerns

Published in the Pacific Coast Business Times, November 1 2013


A Phillips 66 refinery on the Nipomo Mesa is hoping to supplement its dwindling inflow of California crude by extending a rail spur that will allow it to import oil from out of state.

The refinery — tucked away off of Highway 1 in South San Luis Obispo County — is a little-known yet critical part of the Golden State’s petroleum infrastructure. It processes the state’s heavy, sour crude into semi-refined products that flow through 200 miles of pipeline to Conoco’s 128,000-barrel-a-day facility in Rodeo in the Bay Area, where it is turned into gasoline.

The Nipomo plant process 44,000 barrels a day, according to data compiled by Bloomberg News.

Because California’s air regulations mandate special gasoline blends that can’t be obtained from other parts of the country, tiny changes in the state’s infrastructure can have a big impact on prices at the pump. In 2010, for example, an electrical fire damaged the Nipomo refinery and caused the price premium for California gasoline to jump 18 percent compared with the rest of the nation’s gasoline futures contracts, according to Bloomberg.

Now, the Nipomo plant is vying to make it easier to import crude from beyond the Golden State’s borders. The proposed project will consist of an approximately 1.3-mile rail extension that will take up about 30 acres of the refinery’s 1,600 acre site, Phillips 66 spokesperson Rich Johnson told the Business Times in an email. He said the project will be built primarily on the site’s existing rail facility and areas currently used for cattle grazing.

Johnson said the refinery currently has no means of bringing in crude oil from out of state. Incoming oil flows exclusively from California oil fields via pipeline. Despite a declining supply of crude oil in the state, Johnson said the refinery has no other projects planned to diversify its sources, making the project important for the site’s long-term viability.

“The rail offloading project would give us the flexibility to deliver oil from just about anywhere in North America,” Johnson said in an email.

Higher production

Just two months before applying for the rail project, the refinery was granted a permit to increase its oil production by roughly 10 percent after a county review process that spanned more than four years. The production increase required two separate appeals that brought the issue before the Board of Supervisors and, finally, the California Coastal Commission.

Local residents raised concerns with the railway proposal during a forum held by the San Luis Obispo County Planning and Building Department in July. Those in attendance listed potential environmental detriment, noise level and view obstruction among other possible downsides to the project that they want the county to address.

The actual expected impact of the project is set to be revealed in a report on Nov. 22 after the planning department concludes its initial environmental review of the area with support from environmental consultants brought on by the county.

Following the report, the project will go into a public hearing process to invite feedback from the community.

The planning department expects to make a final recommendation on the project by mid-2014, at which point the issue will be decided by the county planning commission.

Murry Wilson, an environmental resource specialist for the planning department who is handling the refinery’s review process, said the refinery is covering the consulting charges for the review by donating the necessary funds to the county’s trust in order to fast-track the process.

Wilson said the company had originally asked the county to complete the project by next June. The county responded that the time frame was not feasible, prompting the refinery to front the costs.

According to the minutes of an Aug. 6 Board of Supervisors meeting, the board unanimously passed two items that put the project’s consulting costs at a total of around half a million dollars.

Barring any potential permitting delays, Johnson said the company hopes to have construction under way by mid-2014 and begin operating the line by 2015.

The company expects to hire about 30 to 50 workers for the construction and could add several more full-time employees when the line is complete.
Wilson said the environmental review team will take into account factors such as regional economic development and potential for employment when deciding whether the project’s benefits sufficiently outweigh potential unavoidable damages.

He said public scrutiny surrounding the project’s introduction did not seem unusually high.

“There’s always some level of concern, and it’s hard to characterize it as to resistance or not,” Wilson said. “It’s kind of the status quo when you’re dealing with land use permitting.”

Nathan Alley, a staff attorney at the Santa Barbara-based Environmental Defense Center, said the project is still too preliminary for the EDC to take a stance on. But there is a good chance the organization will consider it after the report is released later this month. Alley said the general risk of accidents that comes with transporting oil by rail makes the project an automatic concern.

Wilson said the review team will look for ways to mitigate a set list of potential impacts required for assessment by California law.
“We make sure all the potential issues get covered so that all of the information is available when it comes to the decision-making process,” Wilson said.

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