A high-stakes mystery arose almost three years when someone allowed a common industrial solvent to enter one of only three oil pipelines connecting Kern County with refineries in the Bay Area.
The ensuing contamination not only left the pipeline’s owner, Chevron, holding the bag with an estimated 1 million barrels of tainted crude no one wanted. It also caused major disruption for local oil producers, who had to scramble in the incident’s immediate aftermath to find alternative means of bringing their product to market.
Finally, this year, Chevron appears to have found a buyer in Asia, exercising a rarely used exemption to the United States’ general ban on crude oil exports. Exactly how the product will be used remains a subject of speculation, as Chevron has refused to discuss the situation, much less disclose its overseas customer.
Observers call the dilemma unprecedented because of the sheer volume of contaminated product. They say it provided a wake-up call about the need to test oil from possibly unscrupulous sellers, albeit at a price estimated at $50 million or more.
Who ultimately picks up that tab might not be known, people in the industry say, until after Chevron sues the company it believes introduced the contaminant, accidentally or otherwise.
“It’s still a mystery,” refining industry consultant Dave Hackett said. “I guess I’m surprised there haven’t been any lawsuits yet.”
The problem first surfaced Sept. 19, 2012, when Chevron suddenly closed its 85,000-barrel-per-day KLM pipeline, a common carrier than runs through Bakersfield and connects to Northern California refineries operated by Royal Dutch Shell, Tesoro and Valero Energy.
The line remained shut for more than two months as Chevron, citing “elevated” levels of organic chloride, worked to flush the line.
Organic chloride is bad for two reasons: It corrodes refinery piping, which could raise the risk of a dangerous refinery accident, and it degrades the catalytic converters plants use to process fuel.
Although the contaminant can exist naturally in oil reservoirs, this incident is believed to have been manmade because of the concentration of organic chloride needed to force a pipeline closure.
People in the industry suspect the substance either entered the system accidentally as a residue left over from a storage tank cleaning, or intentionally as an additive known to make heavy crude seem light enough to qualify for transportation in the KLM pipeline.
“Things happen by accident, (and) things happen willfully,” said Gordon Schremp, a senior fuels analyst at the California Energy Commission who has followed the situation.
It’s not the first time oil companies have had to deal with the taint of organic chloride. In the early 1980s, the former Mohawk Refinery along Rosedale Highway spent millions of dollars cleaning up after contamination by the same family of chemicals, said Mark Del Papa, who worked at the plant at the time and now works as a fuel supply executive at San Joaquin Refining Co. Inc.
What made the KLM contamination unique was the size of the problem. It wasn’t detected until the oil traveled all the way north to a refinery that spotted the chemical during routine testing. That meant the entire pipeline had to be emptied and scrubbed clean.
The pipeline’s shutdown posed no small hassle for Kern County oil producers, who suddenly faced heightened scrutiny from operators of other pipelines through the area. Many producers had to contract trucks to haul their oil to market, which came at an added expense.
“I remember it vividly,” said Chad Hathaway, an independent local oil producer. “It took up all the trucks that were available.”
Hathaway recalled having to store about a fifth of his production in November 2012 because of the pipeline shutdown. He added that he tests his crude and has never found any organic chloride in the oil he produces.
The incident gradually faded from memory until, earlier this spring, Bloomberg published a news story reporting Chevron had loaded the tainted oil onto two tankers bound for Asia. It said Plains All American Pipeline LP had been keeping it in Bay Area storage tanks for the last three years while Chevron searched for a buyer.
Finding one couldn’t have been easy, given the caustic nature of organic chlorides. Few refineries around the world are able to process tainted oil in a safe manner, leaving the options of blending it with clean oil over an extended period, or burning it whole to generate power in what would be an especially polluting process, industry people say.
Another reason the oil may have sat in storage so long, as crude prices dropped by about half during the last year, was the export ban. Years ago, as a concession to what used to be a glut of oil in California, the federal government crafted an exemption allowing overseas sales of as much as 25,000 barrels per day of heavy oil produced in the state.
But considering the exemption hadn’t been exercised in more than a decade, said Schremp at the energy commission, Chevron’s lawyers probably had a lot of work to do securing permission for a bulk export.
“I think that’s, in part, why it took so long” for Chevron to sell the oil, he said.
Some in the petroleum industry say the KLM pipeline contamination has had a lasting effect on how carefully companies screen the oil they handle, especially more recently as the scope and cost of the problem has become more clear. But they say the urgency that greeted the initial shutdown may have diminished.
“Everyone probably is a little more aware” of the potential for tainted oil, Del Papa said.
Hackett, the refinery consultant, said the situation may ultimately place greater value on dealing only with familiar faces.
“I think some of it comes back to trusting the people that are bringing the oil in to behave themselves,” he said.