Kern Gusher Blog

Friday, Oct 05 2012 04:22 PM

Pipeline shutdown cuts into oil supply

BY JOHN COX Californian staff writer jcox@bakersfield.com

A Chevron pipeline that carries up to 85,000 barrels of oil a day from Kern County to the Bay Area has been temporarily closed, forcing local oil producers to find alternatives for getting their product to market.

How much the shutdown has contributed to California's sharply higher gasoline prices remains unclear. Observers note that refineries have been able to secure adequate oil supplies through alternate means, although others say the disruption has exacerbated already difficult conditions.

Related Info

INSIDE

California gas prices keep rising. Page A3

Chevron said it shut down its KLM pipeline Sept. 19 and has since begun flushing the line to remove "elevated" levels of organic chloride, an oil field solvent corrosive to oil refineries.

"We are continuing to assess the situation and work toward resolution, and are not currently in a position to identify any definite impact to crude volumes," a Chevron spokesman said in a written statement Thursday. It added that the company is trying to determine how the chemical may have entered its system.

The pipeline delivers medium-grade crude to Northern California refineries operated by Royal Dutch Shell, Tesoro and Valero Energy.

The California Energy Commission's senior fuels analyst, Gordon Schremp, asserted that the closure is "not having any bearing on the price spike" because the Northern California refineries have been able to compensate by buying Alaskan and foreign crude. They are also processing reserve inventory on hand, he said, and turning to two other oil pipelines through the Central Valley.

"I think the good news is that the California refineries in Northern California do not depend on this pipeline delivering crude oil," he said.

But Jeffrey Spring, a spokesman for the Automobile Club of Southern California, said the closure likely did play a role in a "panic" as fuel wholesalers scrambled this week to buy up as much supply as they could.

"I would say the oil pipeline (shutdown) did have some impact, just on the fact that it was like the third straw on the camel's back," he said, noting that two of the state's largest refineries have been at least partially disabled recently.

Refinery 'poison'

Refiners can accept small concentrations of organic chloride, but at a certain level the chemical becomes toxic to their facilities, industry consultant Dave Hackett said. He added that such accidents are rare, and he had never before heard of organic chloride tainting a California pipeline.

"Basically, it poisons the refinery," Hackett said. "It's serious."

Oil containing high concentrations of the chemical is automatically worth less money, he added.

"There are a lot of very unhappy folks about this."

He and other industry observers said that until the pipeline reopens, local oil producers could take a financial hit in terms of higher transportation costs.

But it remains unclear how much of an impact the closure is having. A total of five oil pipelines connect Kern County oil fields to refineries -- three running north from Kern and two south.

A local Shell official said Friday that there is sufficient local pipeline capacity to ship more locally produced crude.

This month Shell reported to its customers that its pipeline carrying crude out of Kern County was carrying enough oil to operate 24 hours a day. It was the first time this has happened in recent memory.

Any oil producer unable to tie in to a pipeline has costly options: pay to have it hauled by truck, store it in a tank farm or, in a worst-case scenario, reduce or cease production by shutting in wells.

Factors in higher gas prices

Some suggested the closure may be playing at least a small role in the recent spike in pump prices simply because of the disruption to local oil sales.

"It's not going to affect what you would call the posted (oil) price. It may affect a spot transaction where somebody was going to buy a specific October barrel," said Mark Del Papa, vice president of supply and distribution at Bakersfield's San Joaquin Refining Co., which is not served by the Chevron pipeline.

A gallon of unleaded sold for an average of $4.423 in Bakersfield Friday, according to AAA. That's up almost 13 cents, or 3 percent, from Thursday and more than 27 cents, or close to 7 percent, above the average AAA reported a week before.

The statewide average Friday was $4.486, AAA reported.

Adam Gottlieb, a spokesman for the Energy Commission, noted that wholesale gasoline prices have begun to moderate. He predicted that retail gas prices will start to come down next week.

Have something to share? Comment on this story

Bakersfield.com Daily Deal!

Performance Automotive #1

Daily Deal

50% off Full A/C Service For Your Vehicle

Value
$115
% Off
50%
You Save
$57.50
0 Bought
Buy Now! See more deals