November 27, 2006 - From the November, 2006 issue

Pacific Marine Hopes to Proceed With New Crude Oil Terminal in Los Angeles Harbor

The debates surrounding the infrastructure of oil delivery are as volatile as the commodity itself. While many would be happy never to build another pipeline or drill another well, California's demand for oil has compelled Pacific Marine (formerly Pacific Energy) to proceed with a crude oil terminal at the Port of Los Angeles. In this MIR interview, Exec. VP David Wright explains Pacific Marine's process for gaining regulatory and public approval and contends that the facility will set new environmental standards.


David Wright

What does Pacific Marine's Pier 400 project entail, and why is a crude oil import terminal important to metro Los Angeles?

This project calls for the development of a liquid bulk crude oil import terminal at the southern terminal of Pier 400 in the Port of Los Angeles. The facility will utilize the 81 feet of water depth to bring in very large crude carriers (VLCCs) to input into the local area pipeline system, and ultimately to the local area refineries.

The project is important because Southern California is on the verge of running short of crude oil. Production in California, including the San Joaquin Valley, has declined to nearly 700,000 barrels a day in a state that consumes over 2 billion barrels a day. And the facilities available to import oil are nearly at maximum capacity.

The terminal would be designed to meet the new State Lands Commission facility construction standards (what we call the MOTEM Standards). The facilities will include four million barrels of storage and will be capable of receiving large ships that can carry in excess of two million barrels of crude oil. The crude oil will be offloaded into marine-receiving storage tanks, and from there, the oil will be distributed into other local marine terminals or into Pacific Marine pipeline systems for distribution to the Los Angeles area refineries. The project is designed for roughly 250,000 barrels per day, which is about 25 percent of the oil requirements for Southern California.

What jurisdictions must approve this oil terminal project? Elaborate on the approval process.

We have to deal with several different entities. The Port of Los Angeles is the landlord of the entire port complex, including Berth 408 where the terminal will be located, and the areas where the storage tanks will be constructed. We are dealing with the Port of Los Angeles in developing an agreement to lease land for the berth, storage terminal and rights of way for the pipeline. The project will also require major permits from the Army Corps of Engineers and the South Coast Air Quality Management District as well as other minor permits and approvals.

In order to issue these permits, an environmental review of the potential adverse impacts of the project must be conducted pursuant to the California Environmental Quality Act and the National Environmental Policy Act.

The agency with the broadest authority that we deal with on the state level is the Port of Los Angeles, so they are the lead agency from a CEQA standpoint. The agency that we deal with on the federal level is the Army Corps of Engineers, who are responsible for compliance with NEPA. Both of those agencies have to approve the project on behalf of their respective constituencies.

We are also required to obtain permits and comply with all of the rules of the South Coast Air Quality Management District. In order to get permits to construct from the AQMD, all equipment must have the best available technology to reduce emissions and then offset 120 percent from what we refer to as the operational emissions associated with the project. To meet the AQMD requirements, we've had to go into the air emissions market and purchase an estimated $14 million worth of emissions credit. These credits are certified by the AQMD and are difficult to obtain because they are scarce.

The port and the Army Corps have been developing a combined draft EIS and EIR (DEIS/R) over the last two-and-a-half years, and they have stated they are close to issuing the initial draft. I am told that it will be issued in mid-December. Following the release of the DEIR there is a public review period of approximately 55 days, and we expect that the review will go into mid-February. The port staff will then develop a final proposed mitigated project, which would be presented along with the completed environmental document to the Board of Harbor Commissioners for approval following a public hearing. (The Army Corps has its own procedures.)

Once the draft EIR is certified and the project is approved by the Port of Los Angeles, then the documents are required to go for further review by the Commerce Committee of the Los Angeles City Council and ultimately approved by the full L.A. City Council.

For years environmentalists argued that there were no regulatory controls over stationary polluters in the L.A. Basin and that this omission contributed to poor air quality. Has the pendulum now swung too far to the other side with the adoption of new air quality mitigation requirements? Has a balance been struck, given what is at stake economically and environmentally?

This is simply my opinion, not the company's, but, the requirements to permit a project of this nature are very difficult. We expect to see some stringent air quality mitigation requirements, which will be difficult for our operations and our customer's operations to achieve. We are also aware that the AQMD is in the process of issuing their new, more stringent 2007 Clean Air Plan. These are not impossible, but they are difficult, and they cause more layers of expense to be borne by the industry. In the end we have to be able to achieve a return on those to be considered a successful operation. The bottom line is that costs go up and ultimately the consuming public is going to pay for these costs.

The L.A. Economic Development Corporation has done two reports on the economic significance of Pier 400. What did those reports conclude?

We commissioned the LAEDC to complete those reports for us. The LAEDC estimated that it would provide 4,000 people-year job equivalents in the short term for construction and development. The longer-term operational facility would have about 120 full-time direct and indirect equivalent jobs. These jobs are well-paid union and clerical-type jobs.

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The second report looked at the impacts of increasing energy costs on the overall California economy. They expect the demand for energy to increase in California, in spite of more efficient cars and higher cost for fuel. The demand is being driven primarily by population growth. Both reports indicate some of the value of a project of this nature in terms of a new tax base and new jobs that are associated with it. More importantly, the crude oil that will come will feed the general economy of Southern California

How will your oil terminal project meet the state's and region's new, stringent environmental standards?

As we planned the project, we knew that it would need to meet stringent air-quality requirements and other challenging safety and homeland security issues. For example, from the outset we planned to utilize low-sulfur fuels in the boilers that are used to offload the ships and in the generators for the time that the ships are at shore. We're now also planning to phase-in low sulfur fuels in the vessel main engines. Also, we will be constructing the infrastructure for what the port calls alternative maritime power (AMP), which will allow properly equipped tankers to hook up to electricity while at berth. We will be requiring a certain percentage of ships to equipped for AMP, or some equivalent technology, and the percentages will increase over time as more vessels adopt the necessary equipment.

This is a significant advancement in technology as currently no crude oil tanker in the world is equipped for AMP, although a couple are in the process of being converted. We're anticipating that some of the mitigation requirements that the port is going to require will be similar to mitigation requirements outlined in the ports' recently announced Clean Air Action Plan. Also we will be requiring all of the ships to utilize slow steaming to reduce the amount of air pollution that they generate when they come into California waters, which is generally about 40 nautical miles outside of the ports.

The mayor and Harbor Commission of L.A. have both advocated the same environmental goal: having the greenest city and greenest port in the world. Economic development and jobs are also priorities. How green will this project be?

Our project will be the greenest crude oil terminal in the world. We've been working closely with the port and with our customers. One thing I need to point out is that Pacific doesn't own the ships; we also don't own the crude oil. We are strictly a transporter and a warehouser of the oil that moves from the ships to the refineries, and we don't take ownership of it. But, the people that charter the ships-our customers-will need to work with the owners of the ships they are chartering to ensure that the vessels that call on the Port of Los Angeles meet the mitigation requirements from the project. At the same time, we're requiring that our customers utilize low-sulfur fuels to reduce the types of air pollution that are put out from the project. This will be the cleanest crude oil terminal in the world and much cleaner than the alternative.

What is that alternative?

If a facility like this is not built the region will continue to require more oil for processing into gasoline, and that oil will come into existing terminals, which there are very few of. Because the existing terminals have limited capacities and, in most cases, cannot accommodate the large tankers, the oil will have to come in by smaller ships. Smaller ships are not as efficient and have greater emissions on a per barrel basis. Also, they must travel longer distances into the port complex to the existing berths, which increases emissions during transit. Thus the emissions to bring in the same amount of oil without our project will be greater than if our project is built.

Also, because the facilities that exist today don't have the water depth, they have to bring in the oil in smaller ships. That requires more ships to bring in the same amount of oil. In a number of cases, the berths that are currently permitted are grandfathered from these mitigation requirements. Consequently, until the port imposes different requirements for their permits, they are allowed to bring in ships with the higher-sulfur fuel and they are just not nearly as efficient as this new terminal will be.

Pacific Marine has been working on this since 2001. When do you expect to receive permits and begin construction?

We have worked extensively with the community and many environmental groups. We intend to meet with more environmental groups after the draft EIR is released. We've explained to the community the benefits of the project and the mitigations that are being undertaken. We've worked with different community groups to make sure that they understand what it means to Los Angeles from an economic and jobs standpoint.

We feel that the project is well received from people that understand it, and we feel that the, what I call "professional environmental groups" that have analyzed these sorts of projects are familiar with the actions that we are taking with the project. And hopefully these groups will feel that we have done as much as can be done in light of the nature of this type of project and that they will find this an acceptable project versus the alternative.

Ultimately, the decisions will need to be made by the public policy makers at the port, the city, and with the Corps of Engineers. If the EIR is released in December, we feel that there is a good chance that, if things work like we hope that the facility could be operational around the first part of 2009.

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