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Sparks fly over Tesoro FERC request Nikiski refinery operator wants oil lines and tankage deregulated; oil producers say lack of regulation will limit market options Alan Bailey Petroleum News
A request in early September by Tesoro to the Federal Energy Regulatory Commission, or FERC, asking that the commission deregulate some oil pipelines and tankage associated with the Nikiski oil refinery on Alaska’s Kenai Peninsula has sparked protests from two Cook Inlet oil producers. The oil producers say that deregulation of the Tesoro facilities will prevent the marketing of oil through the Nikiski dock, thus forcing the sale of oil to the refinery.
Tesoro facilities Tesoro, the owner of the Nikiski refinery, also owns two pipelines that carry oil to the refinery from two nearby oil fields — the Chevron-operated Swanson River field and XTO Energy’s Middle Ground Shoal field. Tesoro also owns the facilities at the Nikiski marine dock, some tankage used to store oil adjacent the refinery and a pipeline system that connects Tesoro’s various facilities. Tesoro wants all of its facilities deregulated, including the pipelines carrying oil from the oil fields.
Currently, on the assumption that oil passing through the Tesoro-operated pipelines may be involved in interstate trade, FERC regulates these pipelines as common carrier facilities, available to any entity with a legitimate need to use them and subject to FERC approval of pipeline tariffs. According to Tesoro’s FERC filing this arrangement dates back to the era prior to March 1995, the time when Tesoro bought the pipelines, tanks and marine terminal from Unocal. Unocal is now a Chevron subsidiary.
No longer used In its request to FERC Tesoro said that some of its facilities may have been used at some time prior to 1995 to transport oil to the Nikiski dock for transportation to the Lower 48 states, a transportation arrangement that would have constituted FERC-regulated interstate commerce. However, this type of shipment ceased before 1995 and has not occurred since then. In fact, for at least the last 10 years all oil from the Middle Ground Shoal and Swanson River fields has been sold to Tesoro for processing through the Nikiski refinery. And the purchase points for this oil have been at the intake ends of Tesoro’s pipelines, thus making Tesoro the only shipper of oil through its pipeline system.
Given that the pipelines from the oil fields are now only used for commerce within Alaska and that the other pipelines and tanks are now, in effect, part of the infrastructure of the Nikiski refinery, the various facilities no longer come under FERC jurisdiction, Tesoro told the commission. Tesoro also asked that, if FERC finds that the facilities are still under its jurisdiction, the commission should at least grant a temporary waiver of tariff filing and reporting.
Exxon subsidiary XTO energy, the operator of the Middle Ground Shoal field, and Chevron, the owner through Unocal of Swanson River, have complained vehemently about Tesoro’s request, saying that while they currently sell all of their oil to Tesoro they want to retain the future option of shipping oil through the Nikiski port to other markets. In a FERC filing from Unocal, Chevron Products Co. and Hilcorp Alaska, the company that is in the process of buying all of Chevron’s Cook Inlet assets, attorney Bradley Keithley said that Chevron has from time to time considered transporting Swanson River oil through Tesoro’s pipeline system to the Nikiski dock for shipment to the U.S. West Coast.
Competitive alternative During periodic negotiations for the sale of Swanson River oil to Tesoro, Chevron has retained the option of selling the oil elsewhere as a competitive alternative to selling the oil to Tesoro, Keithley wrote.
“If those facilities are withdrawn from interstate service, however, Union (Unocal) no longer will have a competitive alternative available to it and Tesoro will be positioned to exercise unrestrained power over the pricing of Union’s crude oil,” he wrote.
XTO, in its protest over the Tesoro request, made a similar argument, saying that the Tesoro pipeline system is the only means of shipping oil from the Middle Ground Shoal field.
The availability of a common carrier service through the pipeline system is critical to XTO’s future options for the sale of Middle Ground Shoal oil, wrote attorney Randall Rich in an XTO FERC filing. If XTO has no competitive alternative for the sale of its oil, Tesoro will have complete market power over XTO, enabling Tesoro “to dictate onerous terms for the purchase of XTO’s crude,” Rich wrote.
Proprietary property In responding to Chevron’s complaint, Goldstein & Associates, attorneys for Tesoro, said that oil has not been transported by pipeline to the Nikiski dock for the past 16 years; that Tesoro now only uses its spur pipeline from the dock to import oil to its refinery from oil tankers; and that pipeline and tankage associated with the Nikiski refinery is proprietary Tesoro property.
“In fact, we are certain that the managers of the Chevron refineries at El Segundo, California; Richmond, California; and Pascagoula, Louisiana would be startled, if not outraged, if Tesoro were to seek access as a matter of right to their tanks and docks in the same way that Chevron is now seeking access to Tesoro’s proprietary assets,” the attorneys wrote.
Tesoro also dismissed both Chevron’s and XTO’s claims of being placed at a competitive disadvantage if denied access to interstate oil markets, saying that it would be impractical to ship either company’s oil through the Nikiski port, given the months that it would take for the low production from either of the aging oil fields to put sufficient oil into Tesoro’s storage tanks to fill a tanker.
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