TAPS carriers withdraw tank farm request

Following Tesoro complaint, assertion West Tank Farm discontinuance would have negative impact to handle potential throughput

Kristen Nelson

Petroleum News

The major trans-Alaska oil pipeline owners - BP Pipelines (Alaska) Inc., ConocoPhillips Transportation Alaska Inc. and ExxonMobil Pipeline Co. - have withdrawn a December application to discontinue use of the West Tank Farm at the Valdez Marine Terminal.

The companies said the tanks were already disconnected and the plan was to remove the tank lids this summer.

In a Jan. 12 filing the companies said while they believed permanent discontinuance of the West Tank Farm was in the best interest of shippers, Tesoro Alaska Co., a shipper, had filed a formal complaint and petitioned to intervene.

Because of the cost of formal proceedings before the commission, not only in dollars “but also in terms of distraction of management time and attention from other important matters, and the inevitable damage to important commercial relationships,” the companies said they were withdrawing the application and would “reassess the relative costs and benefits of permanently discontinuing the use of the West Tank Farm.”

The companies said the reassessment would “include informal communications with all TAPS shippers in order to appropriately address the relative costs and benefits of permanently discontinuing the use of the West Tank Farm from the shippers’ perspective.”

Tesoro’s Jan. 2 complaint said that while the application from the carriers - BP, ConocoPhillips and ExxonMobil - asserted declining trans-Alaska oil pipeline throughput, throughput to Valdez has likely gone up recently following shutdown of Flint Hills Resources North Pole refinery, with that volume, 85,000 barrel per day, now going to Valdez.

Tesoro’s complaint noted that when the carriers sought to remove certain pump stations in conjunction with the strategic reconfiguration of the line in 2004, they told the commission that they would be able to transport up to 1.14 million bpd and “would continue to provide reasonably continuous and uninterrupted service for the transportation of crude oil.”

Adequate storage at the Valdez Marine Terminal is part of that service, Tesoro told the commission, and said it “has serious concerns that the permanent discontinuance of the use of the West Tank Farm will result in a shortage of oil storage capacity, leading to proration situations and a disruption of Tesoro’s oil refinery operations.”

Concerns about future throughput

Tesoro told the commission the West Tank Farm is necessary for future trans-Alaska oil pipeline throughput, citing estimates that cumulative production from the Beaufort Sea and the Chukchi Sea could be in excess of 1.5 million bpd, and a U.S. Department of Energy report on Alaska North Slope oil and gas which forecast ANS production reaching 3 million bpd in the mid-2040s.

“Permanently discontinuing use of the West Tank Farm at the VMT would negatively impact the future ability of TAPS to handle future potential throughput,” Tesoro said.

Maintenance shutdown concerns

Valdez Marine Terminal operator Alyeska Pipeline Service Co. had indicated that three to four storage tanks would be out of service between May and early October, and that additional tanks would only have limited use.

Tesoro wrote Alyeska in March in response to a request that all carriers and shippers manage inventories to a level 30 percent or lower of VMT’s working capacity.

Tesoro told Alyeska that it had done “a rigorous scenario analysis” of the proposal, and said it could not reduce its working capacity at VMT by 70 percent “and sustain normal operations at our Kenai Refinery during the period May through October 2014.”

Tesoro said its working capacity for the proposed maintenance period was some 330,000 barrels, and reducing that by 70 percent would reduce the company’s working capacity to some 100,000 barrels, a reduction which would impact Tesoro’s VMT and Kenai refinery operations in several ways.

Since Tesoro’s vessels used to move Alaska North Slope crude hold a maximum of 315,000 barrels, Tesoro would only be able to load its vessels to about a third of capacity, requiring the vessels to have to berth at the terminal two or three times for a typical load. That problem, Tesoro said, “is further compounded by the fact that the VMT summer work schedule plan also has one berth out of service from June to September.”

Without full utilization of its ANS vessels, Tesoro said, it “would have to significantly cut crude oil runs and the associated production of refined products at our Kenai refinery.” That reduction, combined with the announced closure of the Flint Hills North Pole Refinery, would “cut the overall supply of refined products” in Alaska, Tesoro said, adding that no suitable Jones Act tankers are available for hire, so it couldn’t address the capacity issue by using more tankers.

Tesoro also said the proposed VMT summer maintenance plan could impact other refineries in Tesoro’s system, “most notably our Carson refinery, one of the single largest buyers of ANS crude.”