Safety, Competition Concerns Raised Over Proposed Sale of Major California Oil Pipeline

Image from Central Valley Water Quality Control Board report on Shell Oil's May 20, 2016, pipeline break. Picture shows inactive older pipeline and newer pipeline that ruptured, spilling about 21,000 gallons of oil.  (Central Valley Water Quality Control Board)

This story includes a correction (see end of text).

A leading safety expert says California regulators should give careful scrutiny to the proposed purchase of a pipeline that carries crude petroleum to several Bay Area oil refineries because of the prospective buyer's record of oil spills.

The deal has also drawn widespread concern from California energy companies, which have told regulators that the sale of the Shell Oil pipeline system to Long Beach-based Crimson Pipeline could harm them.

Crimson has proposed buying the Shell system, one of three pipeline networks that carry crude oil from Central California oil fields to the Bay Area, for at least $120 million.

Crimson already owns one of the pipeline systems, and industry groups say that the sale would allow the company to dominate the transportation of crude to refineries in Contra Costa and Solano counties.

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The California Public Utilities Commission has begun reviewing the proposed sale, a process that could take between several months to more than a year.

One of the nation's top pipeline safety experts said he's concerned about the deal.

Carl Weimer, executive director of the Pipeline Safety Trust, an independent advocacy group based in Bellingham, Washington, said the CPUC should carefully review Crimson's recent safety history.

"I think the regulators would want to get some assurance that Crimson has the ability to operate and maintain a pipeline that's already been somewhat problematic," Weimer said.

Under Shell's management, the pipeline ruptured in 2015 and 2016, releasing tens of thousands of gallons of oil in eastern Alameda County and causing millions of dollars in damage.

The spills prompted California's fire marshal, for the first time, to call on a pipeline operator to replace about 12 miles of the line.

Weimer pointed to recent data from the federal Pipeline and Hazardous Materials Safety Administration as demonstrating potential concern about Crimson's operations.

One of the metrics PHMSA uses to compare how much oil a pipeline spills is "barrel miles." Each barrel mile represents one barrel of oil transported 1 mile in a pipeline.

By that measure -- the number of barrels spilled per billion barrel miles -- PHMSA says Crimson had the nation's second-highest three-year average of oil spilled. The agency data included spills from 2016 through 2018.

In 2016 a Crimson line ruptured, spilling 45,000 gallons of crude in Ventura. The Los Angeles Times reported the company had recorded 10 spills in the previous decade, totaling 313,000 gallons and causing close to $6 million in property damage.

Weimer said the CPUC should require Crimson to explain its record of spills. He added that regulators should consider how the Shell pipeline system works when assessing Crimson's purchase proposal.

The Shell pipeline carries crude that's heated and pushed through at different pressures, two factors that raise safety challenges, according to Weimer.

Shell's pipeline problems arose "because of those two exact things," Weimer said. "They need to make sure that Crimson has the ability to deal with those types of issues."

A representative for Crimson did not respond to a request for comment on industry and safety concerns tied to the proposed sale.

Sale Raises Industry Concerns

Shell and Crimson announced the pipeline deal in January. Crimson, which owns several other lines in California and Louisiana, filed paperwork in April asking the CPUC to approve the sale.

That centerpiece of the deal is the San Pablo Bay Pipeline, a 177-mile system that runs up the west side of the San Joaquin Valley from Coalinga, across the southwestern edge of the Delta, and through the hills of eastern Alameda and Contra Costa counties to the Shell and Marathon refineries in Martinez and Valero in Benicia.

The San Pablo Bay system is one of three pipelines that bring crude oil to Bay Area refineries. Crimson already owns a line known as the KLM pipeline, and Phillips 66 runs a pipeline that brings crude from Kern County to its refinery in Rodeo.

Crimson says in its CPUC filing its plan to buy the Shell line is in the public interest, would benefit producers and refineries, and would not harm competition.

Shell says it wants to sell its pipelines in California because they "are not a strategic fit in its portfolio," company spokesman Ray Fisher said in a statement.

Earlier this month Shell agreed to sell its Martinez refinery to PBF Energy, a large independent refining company, for up to $1 billion.

Oil Giants That Run Bay Area Refineries Want Assurances

The Valero Energy Co., which has a major refinery in Benicia, and Marathon Petroleum, which owns the old Tesoro refinery (formerly known as the Golden Eagle refinery) in Martinez, have filed official protests with the CPUC over the sale.

The major oil companies, referred to as "joint shippers" in their CPUC filing, say they fear Crimson will charge them more than Shell currently does to transport crude to their facilities.

"Joint shippers respectfully urge the commission to direct Crimson to provide, and to carefully review, Crimson's financial books and records to properly assess whether Crimson is economically equipped to acquire yet another large pipeline infrastructure," the companies wrote to the CPUC.

Valero and Marathon say they want assurances that Crimson will continue to provide heated crude to Bay Area refineries, as Shell has been doing. The also want to know whether the company plans to consolidate what would be its two lines between the Central Valley and Bay Area.

Valero and Marathon declined comment beyond the public filings.

Independent Producers Protest Deal

A trade association representing 500 independent crude oil and natural gas producers and other companies has also filed a protest with the CPUC over the proposed sale.

"By any measure, Crimson will have substantial market power over a critical pipeline for California petroleum resources," said the filing from the California Independent Petroleum Association. The group said it represents about 70% of the state's oil producers and 90%  of its natural gas producers.

The association wants to be assured that if the sale goes through, its members rates won't change for at least five years. It expressed worries that if Crimson were to shut down one of the two main pipelines, some of its members would be forced to truck their product to Bay Area refineries.

Those concerns may be tied to a change in oil production in the last couple of decades: Oil producers are pumping out less oil, and both the Shell and KLM lines are carrying less crude.

"Much of the active pipeline capacity out of the San Joaquin Valley is unfilled," Crimson said in its filing.

That can have a negative effect on line performance. If a pipeline has too little oil, the fuel can solidify and damage the line. Operators heat the crude petroleum to avoid that problem.

"It's like trying to move cold honey through a pipeline. It won't move if it's cold. You need to keep it warm enough to keep it moving," said the Pipeline Safety Trust's Weimer.

CIPA CEO Rock Zierman says his association supports the deal -- his association just wants to make sure its members don't lose out.

"It is of significant interest to CIPA members that the transaction results in fair and reasonable rates and competitive conditions of operation for California's petroleum pipelines," Zierman said.

"The goal of the protest is for the CPUC to grant 'party status' to CIPA, so that independent producers can ensure their interests are heard during the transaction process," he said.

Correction: This story originally reported that Shell Oil's pipeline carries crude petroleum to Chevron's Richmond refinery, information included in Crimson's application to the CPUC. However, Chevron says the Richmond facility gets crude only by ship, through the refinery's marine terminal.

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