West Coast refineries, particularly those in Washington state, once got most of their oil from Alaska, but the state's output is now only a fraction of what it used to be. The Alaska North Slope produces roughly 500,000 barrels per day, down from just over two million barrels per day at the peak in 1988. California's production has also dropped, down to about 550,000 barrels from 1.1 million in 1985. The EIA reports that while U.S. production increased by 3.2 million barrels per day from 2010 to 2014, production from the West Coast/Alaska region dropped by 100,000 barrels.
That means refineries have increasingly relied on imports to compensate for the declines. Imports to the area have surged to an average of 1.1 million barrels per day over the past five years, according to the EIA, from 200,000 in 1990, much of it coming from Saudi Arabia, Iraq, Canada, Ecuador and Colombia.
"The West Coast is significantly disadvantaged as far as getting its crude oil supply given the declines we've seen in Alaska and California production over the last 20 years, so refiners out there, including Tesoro, are looking for alternative supplies," said Lipow Oil Associates President Andrew Lipow, who said he thinks crude by rail to the West Coast is here to stay. "The reason that the industry went ahead with crude-by-rail was to compete with the higher-price imports that are coming from places like Russia and Saudi Arabia at the same time that the U.S. has been limited on exports of its domestic production."
As the debate for lifting the four-decade-old ban on exporting crude ratchets up, questions about whether the Vancouver Energy terminal would be well-positioned to take advantage of such a change have also been raised. But Tesoro says that not part of its thinking.
"We understand there is a discussion going on in Congress on what ultimately happens with the export of crude oil," Casey said. "Today it's not legal to export crude oil, so it's not part of our design or contemplation."
Rather, its strategy entails getting more domestic crude to more domestic refineries, thus making another market for U.S. production that will boost demand without turning abroad, he said. Both Lipow and Cinquegrana note that projects like this could actually dampen arguments for lifting the ban.