NEB turns down Chevron priority application

The National Energy Board has turned down Chevron Canada's application for priority access to the Trans Mountain pipeline.

Chevron had applied for the priority destination designation (PDD) in response to apportionment in recent years—competition for capacity on the Kinder Morgan-owned pipeline resulting in reduced supply for those customers without firm contracts—affecting the amount of crude oil being delivered to its North Burnaby refinery.

Between January 2012 and March 2013 the apportionment was 71 per cent on average, the NEB said in its reasons for decision released July 11.

The NEB said the designation "should only be applied in extraordinary circumstances," and based on the evidence it determined Chevron's circumstances did not warrant such a move.

Chevron's Burnaby refinery has operated at above its minimum run rate of 40,000 barrels per day (bpd) each month since apportionment began again in November 2010, apart from shutdowns for planned maintenance, the NEB noted. Chevron said it has replaced part of its supply shortfall but has "been forced to incur extraordinary expense" to do so.

"In the Board’s view, it is the responsibility of Chevron to design a portfolio of supply options that will best mitigate its supply risk and ensure the long-term viability of the Burnaby Refinery. In this context, the Board believes that no option should be completely ruled out by Chevron in mitigating its supply risk for the future, including a potential waterborne option, the Secondary Market, Westridge Dock bids, and any other option that Chevron can develop to avoid PDD."

The NEB added, "the PDD provision is not intended to shield companies from their business risks or the need to make prudent investments."

It did, however, direct Trans Mountain to revise its capacity allocation procedures in an effort address the current apportionment situation, giving a deadline of Sept. 30 for the pipeline company to consult with its customers and present a proposal to the NEB or explain why current procedures are adequate.

“Chevron is disappointed in the NEB’s decision," said Ray Lord, spokesperson for Chevron Canada's Burnaby refinery, by email. "This denial of our application will result in the refinery facing ongoing challenges in securing a reliable, cost effective supply of crude oil.

"We will continue, as we have been in recent years, to explore all available options  to access the crude supply that the refinery requires to continue supplying products to our customers at competitive prices.”

As for potential changes to the process of allocating pipeline capacity, Lord said "Chevron is prepared and willing to work with Kinder Morgan on any change in the existing nomination process that would help with the current challenges associated with the way pipeline volume is allocated.”

In a recent interview, Lord said its new rail facility opened in May and since then the refinery has received eight to 10 rail cars a day of crude oil, about 6,500 barrels. That represents just under 12 per cent of the 55,000 barrels the refinery processes each day.

For about a year, Chevron has also been receiving another 1,000 bpd by tanker truck. The crude is transported to Langley by rail before completing the trip to Burnaby by road.

Burnaby-Douglas NDP MP Kennedy Stewart isn't optimistic the situation will improve for the refinery.

"I don't think this is something that's going to get better for Chevron, it's probably going to get worse for them as foreign demand for oil increases," Stewart said.

He noted that the Chevron refinery and Trans Mountain pipeline were originally built to produce petroleum products for domestic consumption. "Now with Kinder Morgan as the owner of the pipeline, it's really shifting to export."

If the decision hurts the Burnaby refinery to the point it is forced to close, "what does that do for oil, gasoline provision for B.C.? I don't think anyone's actually looked at that."

And while Kinder Morgan proposes to twin the pipeline to expand capacity, Stewart noted that the new pipe will be designed to carry oil-sands bitumen, which the Chevron refinery can't process.

Stewart is most concerned about the impact of the decision on the local community, such as the effect on refinery jobs, train and truck traffic carrying crude, and the cost of fuel.

"I'm really worried if this refinery closed, how it would impact the price of gasoline locally. I think you could expect an increase in local gas prices if our only refinery closed."

Comment from Trans Mountain was not received before the NewsLeader's deadline.

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