Tesoro stands by delayed Vancouver project

OREANDA-NEWS. August 07, 2015. Bakken crude will continue flowing to the west coast, but low prices have complicated a recently completed Utah refinery upgrade, US independent refiner Tesoro said today.

Tesoro shrugged off the latest round of permitting delays at its proposed 360,000 b/d joint venture crude offloading project at Vancouver, Washington, offering no signs of fatigue or alternative plans for a facility the company had hoped to bring online more than a year ago. Officials with the state Energy Facility Site Evaluation Council (EFSEC) recently delayed release of a draft environmental impact statement until at least November.

Improved North American crude access for Tesoro's west coast refineries is essential to the company's overall strategy. Bakken prices have fallen by more than half since the company first proposed the project in April 2013, and production has slowed.

"We're very confident that the movement of Bakken crude oil to the west coast will continue to make sense over time," chief executive Greg Goff said. "We don't see any change there, and our commitment to Vancouver Energy hasn't waivered from the very first day. It's just a very slow, time consuming process that, unfortunately, most of it is outside of our control."

Prices had taken a heavier toll in the more isolated and challenging Uinta basin of northeast Utah. Fields there produce a light, sweet but very waxy crude difficult to transport extended distances. Tesoro in the second quarter completed an expansion of its now 58,000 b/d refinery in Salt Lake City, Utah.

The expansion more than doubled the refinery's ability to run the paraffinic crudes, to 24,000 b/d. But Newfield Exploration, the largest Uinta basin producer, has slashed production.

"There's no question that drilling has dried up in the Uinta bsin, and that's going to have an impact on the availability of waxy crude," Goff said.

The refinery has alternative crude supplies, he said, but "economics that were originally behind that project are not as attractive as when we spent the money," Goff said.

Strong gasoline demand and tight supplies have meanwhile yet to tip the US west coast into a fuel shortage. Tesoro is the second largest refiner by crude capacity in California, where outages including an ongoing shutdown of gasoline-producing equipment at ExxonMobil's 155,000 b/d Torrance refinery have sharply curtailed the normal supply of gasoline and driven up prices.

The state has seen a significant increase in imports compared to previous years, but the backwardation may make it difficult for exporters to fully capture that arbitrage, Goff said. Tesoro had meanwhile tilted production toward gasoline and ran at 523,000 b/d in California during the second quarter.

Refiners in the state last week hit a 2015 record of 1.04mn b/d of production for the state's boutique gasoline blend.

"We have not had any problems supplying our customers at all," Goff said.

Tesoro refineries will run between 95pc and 100pc during the third quarter.

The company reported a \\$586mn profit for the second quarter, more than double the \\$224mn reported a year earlier.