Gasoline supplies remained ample throughout Los Angeles last week, stabilizing high pump prices throughout the region. But another problem might be looming: a shortage of storage capacity.
When California became a net importer of refined fuels seven years ago, the ports of Los Angeles and Long Beach became key storage areas for gasoline and diesel shipped in from other states and countries to augment the supplies of local refineries.
But massive container traffic is crowding out these facilities and there are concerns that the region will become more vulnerable to a supply squeeze as local demand grows and local refinery output stagnates.
"There is not a lot of capacity for storage; it runs full. And demand is running faster than refiners' capacity," said Dave Hackett, president of the Irvine energy consulting firm Stillwater Associates LLC, which conducted a study of the issue for the California Energy Commission.
The limited storage capacity leaves the region vulnerable to a supply squeeze, especially when a refinery goes off line for repairs or because of a fire, both of which occurred this summer.
The state depends on imports for 10 percent of its gasoline and diesel and 25 percent of its jet fuel. Some estimates project that by 2025, California will need to import 5 billion gallons of gas and diesel a day, double what it does now.
While all this additional fuel needs a place to be stored, the boom of imported goods manufactured in Asia means more terminal space has been gobbled up by companies shipping in cargo containers, which generates more revenue for the ports than liquid bulk storage.
Oil companies say the biggest problem is at the Port of Los Angeles, which has nine liquid bulk terminals that handled 11.9 million metric tons of oil last year, just a fraction of the 146.3 metric tons of general cargo that passed through the port.
Oil companies say that 8.8 million barrels of bulk liquid storage has been lost to general cargo terminals in recent years and additional space may be lost as two expired leases come up for renewal: Valero Energy Corp.'s 926,000-barrel-per-day capacity terminal at Berth 164 and ConocoPhillips Co.'s facility at Berths 148 151.
"Based on the port's preference of leasing space to container ships, there's another 3.4 million barrels in jeopardy," said Joe Sparano, president of the Western States Petroleum Association, a trade organization.
Officials at the Los Angeles port deny they have any preference to lease space to general shipping terminals, even as they acknowledge that regular cargo generates more revenue than liquid bulk storage.
"We make the bulk of our revenues off of containers, there's no question about that," said David Mathewson, director of planning and environmental affairs for the Los Angeles port. "Containers are more attractive for revenues, based on volume, land and throughput, but it has been our practice to maintain a diversified port."
Storage capacity at the ports didn't become an issue until several years ago, when refinery breakdowns coincided with pipeline breakdowns in the Pacific Northwest. The result was shortages on the spot market and higher prices. That prompted state officials to have Stillwater research the possibility of a strategic fuel reserve at the ports to buffer the economy from supply disruptions.
But the ports and oil companies have been at odds over where to put the liquid bulk storage facilities at the Los Angeles port. There had been a long-standing plan to consolidate them on Terminal Island, which is farther away from residential neighborhoods. Community groups were pushing for the consolidation on both environmental and security grounds.
But in 2004, when the port completed construction of its massive new Pier 400 on Terminal Island, 98 percent of the space went to Maersk-Sealand, a division of Denmark-based A.P. M & #345;ller-M & #263;rsk. The $500 million facility is the largest proprietary cargo terminal in the world, with the 25-year-lease expecting to generate $2 billion for the port.
Port officials said they cut the deal three years earlier because oil companies were not interested in spending the money to move their facilities. "I was working at Mobil at the time," said Hackett. "We had a long-term lease and we didn't have to move, so it didn't make economic sense. This was not rocket science, just dollars and cents."
City Councilmember Janice Hahn, whose 15th District includes San Pedro and Wilmington, said the port gave up too easily on the consolidation plan. "It was an agreement between the community and the port to relocate the liquid bulk to Pier 400. Instead, we feel like the port just went ahead and rented it to Maersk," she said.
Hahn said the community is still in agreement that any gas and diesel facilities near residential areas should be moved. That includes Westway Terminal Co.'s facility at Berth 70 and 71, which stands in the path of a port waterfront park project called Bridge to Baywater.
Despite the lack of space for fuel storage remains, port officials contend the situation isn't all bleak. Some expansion of the port's oil import capacity is being made on the 2 percent of land available at Pier 400, with a project by Long Beach-based Pacific Energy Partners L.P. It is building a terminal that will be able to bring 250,000 barrels of imported crude to L.A. area refineries per day when it goes on line in 2007.
But given that the project will import crude, Sparano said it does nothing to add to the limited capacity to store refined fuel. "If we can't process imports and exports through our own ports because we don't allow product to move, the end result could be a significant reduction of energy available to California consumers," he said.
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