It’s a long way from Houston to Los Angeles – around 1,500 miles. Could Houston fill Cali’s gas tanks? A new EPA rule might just make it so.
How does O&G flow to the East Coast?
Houston currently ships gasoline, diesel, and other refined products throughout the mid-Atlantic and to New York City harbor via the Colonial Pipeline. The Big Apple is over 1,600 miles from Space City, so clearly it can be done. Not only that, the Colonial keeps expanding so that even more Gulf Coast refined product can move East.
The unconventional revolution in America’s heartland has induced additional investment in East Coast refineries because the Bakken produces the light sweet crudes these refineries need to operate, reducing their previous reliance on imported (and unprofitable) crude. If the unconventional crude producers in the Bakken weren’t railing light sweet to the East Coast refineries, many would have shut down because it is hard to compete with the advanced refining technology and inexpensive crude sources available in the Gulf Coast.
The West Coast is more isolated
Unlike the East Coast, California is largely a gasoline and diesel island – no refined product pipelines connect California to the rest of the United States. Further isolation comes from the fact that California has the highest clean air standards of any state so West Coast refineries are specially engineered to produce super clean gasoline and diesel.
Since Californians consume more gasoline than any other state, demand must be met by refineries on the West Coast or imported by water or rail vessels.
As anyone who has watched the Beverly Hillbillies may remember, California is also a major oil producing state. But, unlike Texas and North Dakota, California’s crude oil production is declining. Geologists debate whether an unconventional revolution is likely in the Golden State, but the reality is that it has not happened yet. Alaska supplies a substantial amount of crude to California, but Alaskan production is also declining.
Like East Coast refineries, the West Coast also receives light sweet crude by railroad.
The Freedom Pipeline
Interestingly enough, last year Kinder Morgan proposed building a crude oil pipeline called Freedom from West Texas to California along an existing natural gas pipeline. West Coast refineries, however, wouldn’t commit to receiving crude that way, so the project was dropped.
Subsequent to Freedom’s demise, the U.S. Environmental Protection Agency adopted a new rule that in effect requires all U.S. refineries make California type gasoline for sale by the year 2017. While the refining industry opposed the rule because of its cost and questioned its environmental benefits, it would literally take an Act of Congress to repeal it.
So if Gulf Coast refineries have to upgrade, a market exists in California, and the Gulf has a competitive advantage due to the rapidly increasing and relatively inexpensive crude pouring downstream from unconventional producers, why not build a pipeline to where these products could be sold?
Maybe it’s time for Texas to bring the Freedom of a downstream energy pipeline to the Promised Land!
What do you think? Would a refined Freedom Pipeline for refined products solve some of California’s energy problems? Leave a comment below.