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Tesoro Plans West Coast Rail Operation to Tap Shale Crude Boom

April 23 (Bloomberg) -- Tesoro Corp. plans to build a complex in Washington that would unload crude from trains and put it on vessels, the latest move to get oil from the central U.S. to refining centers on the West Coast.

Tesoro and Savage Companies are forming a joint venture at the Port of Vancouver that would be able to move 120,000 barrels of oil a day and might be online in 2014, the companies said in a statement yesterday. Approval from port commissioners and regulators is needed.

That project and another bought in February by Global Partners LP show companies are taking extra steps to get crude from the middle of the U.S., where output is increasing, to refineries on the coasts, which are seeking to replace shrinking output from California and Alaska.

“It illustrates the changing dynamics,” Dave Hackett, president of Irvine, California-based oil consultant Stillwater Associates, said yesterday in a telephone interview. “The market keeps running into bottlenecks and keeps having to solve the logistics problems and figure out how to get around the bottlenecks by building additional capacity.”

Plains Marketing LP’s posted price for Williston Basin sweet crude out of North Dakota was $76.19 a barrel yesterday, more than $24 below Brent, the European benchmark that waterborne crudes are priced against. The spot price for Kern River crude in California was $90.60 a barrel, according to data compiled by Bloomberg.

Railing crude from the middle of the country to the West Coast can cost $13 a barrel, Valero Energy Corp. said in an investor presentation March 20. Shipping crude to another port would add to the cost.

California Permitting

Unloading trains directly at a California refinery is unfeasible because obtaining state permits would take too long, Hackett said.

“Why are they building it there rather than building it next to refineries in California?” he said. “Because they can’t build it in California, they can’t get it done fast enough. It’s all of this permitting, it’s very difficult to do.”

Tesoro owns five West Coast refineries. It plans to shut the Kapolei plant in Hawaii by the end of this month. Its Anacortes, Washington, plant has a rail-unloading operation that will allow it to process 50,000 barrels a day of Bakken crude this quarter, the company said in its first-quarter earnings call.

Tesoro Refineries

Tesoro’s refineries in Northern California, Los Angeles and Alaska can process 339,000 barrels a day combined. The company has agreed to purchase BP Plc’s 266,000-barrel-a-day refinery in Carson, California, near Los Angeles.

“This project is the ideal next step for Tesoro as we drive additional feedstock cost advantage to the remaining refineries in our West Coast system,” Greg Goff, chief executive of San Antonio-based Tesoro, said in a statement.

Global Partners announced Feb. 19 that it purchased a crude oil and ethanol complex in the Port of St. Helens in Oregon that has rail-unloading capability, 200,000 barrels of storage capacity and access to a marine terminal.

Global Partners also operates a rail-unloading plant in Albany, New York, that puts Bakken crude onto barges for East Coast refiners.

“Just as we have for East Coast refiners since 2011, Global can now supply cost-competitive crude from the U.S. and Canadian mid-continent to refiners on the West Coast,” Eric Slifka, chief executive officer of Waltham, Massachusetts-based Global, said in a written statement.

Crude oil production in Alaska fell by 6,000 barrels to 549,000 barrels a day in January, 74 percent below the peak of 2.09 million in March 1988, according to U.S. Energy Department data. Output in California has fallen by more than half from its 1.11 million-barrel-a-day peak in February 1986 to 529,000 barrels a day in January.

To contact the reporters on this story: Dan Murtaugh in Houston at; Lynn Doan in San Francisco at

To contact the editor responsible for this story: Dan Stets at

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