Refiner Tesoro nears end of Vancouver rail-to-marine terminal quest

By Erwin Seba

HOUSTON, June 6 (Reuters) - Tesoro Corp's $210 million plan to build the country's largest rail-to-marine terminal in Vancouver, in the U.S. state of Washington, faces a hearing on Wednesday as the refiner and marketer of petroleum products pursues a four year plan to get approval.

The project which would feed West Coast refineries, has two hurdles on its path to a recommendation from a Washington state council to Governor Jay Inslee, who has final approval. The council's recommendation is expected this summer and Inslee must decide within 60 days.

The Governor has not indicated how he will rule and his office did not reply to a request for comment. Among other options, Inslee could send the proposal back to the state Energy Facility Site Evaluation Council.

"This is the largest project of its type in the country," said EFSEC spokeswoman Anna Gill in an interview. "This is the only project the council is working on."

Tesoro and partner Savage Cos, a transportation logistics firm, say their Vancouver Energy terminal's economics remain sound despite declines in crude oil prices and safety concerns about transporting crude by rail. The terminal itself would nearly triple, to about 11 million barrels a month, the amount of inland and Bakken crude that could be sent to Tesoro and others' refineries in Washington, California and Alaska. The crude is not intended for export markets.

The Port of Vancouver rail terminal would receive up to 360,000 barrels per day of crude oil from Midwest oil fields via about four trains that would travel in part along a section of the Columbia River before loaded on to ships.

OUTLASTED RIVALS

"We take a long-term view in developing and pursuing our major projects and continue to be fully dedicated to the success of the project," Christina Barbee, a Tesoro spokeswoman, said in a statement.

The Tesoro-Savage venture has outlasted rivals. Last October, Royal Dutch Shell Plc (LSE: 0LN9.L - news) scrapped a plan to build a Washington terminal that would have taken 400,000 barrels a week of Bakken and other inland crudes to its Washington state refinery. The economics failed because of global crude market oversupply and tighter capital, Shell (LSE: RDSB.L - news) said.

The partners have pressed ahead despite a 2013 oil-train disaster in Quebec that stirred opposition to moving crude by rail, an oil price collapse that reduced production at the Bakken fields that would be the main source of oil, and the opening of the Dakota Access Pipeline that created a cheaper route to ship Bakken oil to the Gulf Coast.

Wednesday's public hearing on the draft air pollution permit has opponents including environmental and religious groups and Native American tribes gearing up for another effort to stop the project.

"We think shipping huge amounts of crude oil along the Columbia River through our communities is too dangerous," said Brett VandenHeuvel, executive director of environmental group Columbia Riverkeeper.

"The supply chain already exists," said Jared Larrabee, general manager of proposed Vancouver Energy Center, referring to existing crude-by-rail transport to the port. "It's just the terminal that needs to be put in."

According to the U.S. Energy Information Administration, the West Coast last year received an average 4 million barrels of crude oil per month by rail from the Midwest, primarily lower-cost oil from the Bakken oil fields in North Dakota.

The West Coast ranks second to East Coast as a destination for Midwestern crude and that could change with shipments from the Dakota Access Pipeline that began shipping crude on June 1.

Bringing lower cost crude to its refineries from the central United States is a smart move for Tesoro, said David Hackett, president of Irvine, California, consultancy Stillwater Associates.

"One of the things Tesoro has to pay attention to is getting crude to refineries in California and Alaska," Hackett said. "Vancouver gives them an efficient way to do that."

The EFSEC also has to approve a draft wastewater permit it is considering before sending the project to Governor Inslee.

If Inslee approves the Vancouver Energy Center, construction will take about a year, Larrabee said. (Reporting by Erwin Seba; Editing by Gary McWilliams)