Pipeline problems are again crimping local oil producers’ efforts to get their product to market and fetch a good price for it.
Shell’s San Pablo pipeline, which normally carries 140,000 barrels per day from Kern County to refineries in the Bay Area, remains closed for repairs after spilling some 20,000 gallons of oil near Tracy about a month ago. It is one of only three pipelines connecting local oil fields with Northern California.
Although the closure is not a big problem for refineries able to bring in imported crude from nearby ports, it appears to be depressing the price of locally produced oil.
A report by oil information service S&P Global Platts said the price differential between Kern River crude and U.S. futures benchmark West Texas Intermediate had widened to $10 per barrel by Thursday, up from May’s average “discount” of $6.02 per barrel.
Berkeley refining industry consultant Ian Goodman said the price difference is unsurprising because oil producers who would otherwise pay to use the San Pablo have had to find costly alternatives such as transporting their oil by truck or storing it. “So crude prices have dropped to make these work arounds economically viable,” he wrote in an email.
Bakersfield oilman Ken Hunter said by email Tuesday he is feeling the effects of the pipeline shutdown.
“We have had to shut in (close off) some production ... because of the San Pablo shut down,” Hunter wrote. Whatever oil he is able to ship must be sold at “a considerable discount” from refiners’ posted prices because of the pipeline service disruption, he added.
California oil producers periodically have to deal with pipeline problems, such as the large-scale oil contamination that shut Chevron’s former KLM pipeline in 2012. The incident held up 85,000 barrels a day and forced local producers to identify alternate means of delivery.
Pipeline stoppages may feel more acute lately because low prices have put international oil producers in the position of fighting harder for marketshare.
“The offshore imports are very competitive right now,” Goodman said.
An important factor for local producers is how much space they have available to store oil. The California Energy Commission’s senior fuels specialist, Gordon Schremp, noted storage tanks have been filling up lately.
He sees California refineries getting the oil supplies they need, which should come as a relief to motorists looking to fill their gas tanks inexpensively.
He said some oil producers will have to truck their product to market, while others won’t even be able to do that.
“Like anything else, it’s site-specific, operator-specific and operator economics,” Schremp said.
The good news, he noted, is that the San Pablo is expected to reopen in mid-July.
“This is clearly a temporary closure and I think the system will equilibrate,” he said.