Collapsing crude markets have hit oil projects across the globe.
Last year, 68 major projects, which would have produced 27 billion barrels of oil and natural gas, were canceled worldwide, according to a recent report by Wood Mackenzie, an energy industry analyst. In the Northwest, Global Partners recently laid off more than half its workforce at its Clatskanie-area crude oil dock. And Renewable Energy Group announced last month that it is dropping crude oil in its expansion of a Grays Harbor energy terminal.
So what does all this mean for the proposed oil projects in Longview and Vancouver?
Very little, if you ask their proponents, who argue that their projects will support the long-term demands of the West Coast markets. Yet skeptics say that economics, politics and regulatory hurdles could snuff the projects.
“I think you’d have a better chance of Rosie O’Donnell becoming Donald Trump’s private secretary before (the Longview oil export project) is going to happen. The world has changed drastically from where it was when all these projects were proposed,” said Tom Kloza, energy analyst at the Oil Price Information Service.
While the Vancouver Energy refinery is further along in the process, the Longview refinery still faces many regulatory hoops, and Kloza isn’t confident the project can survive the lengthy process.
Vancouver Energy, a joint venture of Tesoro Corp. and Savage Companies, wants to build a $210 million oil terminal capable of shipping 360,000 barrels of oil a day out of the Port of Vancouver.
Unlike the Vancouver project, Waterside Energy’s proposed Longview project would be a refinery. The $800 million project would process 15,000 barrels of vegetable seed oil and 30,000 barrels of crude oil daily. Both the Vancouver and Longview oil projects would be supplied by trains carrying Bakken field crude oil from North Dakota.
Long-term outlook
The viability of the projects hinges on long-term oil markets, which are notoriously hard to predict. West Texas Intermediate crude dipped to $30 a barrel on Monday, down about $49 a barrel from a year ago. While some experts say prices will start to rebound in the next two years, Goldman Sachs and others have predicted 15 more years of lower prices, with a chance that oil could drop to $20 a barrel.
Kloza said crude-by-rail projects made sense several years ago, when the price of Bakken oil was $15 to $30 less per barrel than world prices. But the price difference has narrowed.
“Crude by rail from North Dakota to the coast has been knocked asunder by the collapse in crude oil prices,” Kloza said.
Furthermore, Bakken producers could take advantage of the recent lifting of the 40-year export ban on U.S.-produced oil and bypass domestic refineries, Kloza said. That would, in turn, make proposed West Coast facilities such as Waterside’s less viable in the long run.
Lou Soumas, CEO of Waterside Energy, argued that the Longview refinery project is not so dependent on the price of crude oil.
“Our economics are not based on the differential in crude prices. Ours is based on the difference in what you can pay for your oil and what you sell it for,” Soumas said. Cheap oil has been a boon for refineries in recent years, he said. And if the cost of oil supplies rise, refineries’ prices for gasoline will rise accordingly, he said.
“The economics are as strong today as when we first proposed the project two or three years ago,” Soumas said.
Vancouver Energy General Manager Jared Larrabee isn’t fazed by the recent volatility in the oil markets, either.
“We are in it for the long haul. The reality is that oil markets are cyclic,” Larrabee said. “We know that while the cycle is down right now, the fundamentals actually have not changed.”
“There’s no commercial scale (crude oil) outlet on the West Coast that has this connection between rail and marine,” he said. The West Coast imports 1.1 million barrels of oil a day, according to the U.S. Energy Information Administration, and Larrabee says that shows there’s still a demand for oil in the region.
Both Vancouver Energy and Waterside Energy officials say they have no intention of exporting their products overseas.
Soumas said the Longview refinery simply wouldn’t have the dock and other facilities to handle oceangoing vessels, and that it would require a completely different permitting process.
But not everyone is convinced.
“What every ordinary refinery does in America is to buy and sell product based on where the profits are,” said Eric de Place, policy director at Sightline Institute, a Seattle environmental think tank.
“My great concern is once you build it (a terminal or refinery), you can use it for any number of things,” he said.
“If prices go back and if we see demand on the Pacific Rim, then the Pacific Northwest could look awfully attractive on the oil industry,” he said. “If history is any guide, the future is uncertain.”
