Pipeline Acquisition Offers Critical Lifeline for California Oil Producers

California oil producers received some genuinely good infrastructure news this week. The California Public Utilities Commission approved California Resources Corporation’s acquisition of the San Pablo Bay Pipeline and Crimson California Pipeline companies from CorEnergy Infrastructure Trust. The pipeline system includes critical infrastructure connecting Kern County oil fields with Bay Area refineries, as well as pipelines serving producers and refineries in Southern California.

CIPA supported the transfer and CIPA CEO Rock Zierman testified before the CPUC in favor of the item at last week’s hearing. The approval is particularly important because the San Pablo Bay Pipeline has been idle since December, effectively severing a major transportation route between Kern County producers and Bay Area refining capacity. The shutdown has placed additional pressure on the remaining infrastructure moving crude south toward Los Angeles.

For CIPA members, this is not an abstract infrastructure issue. A producing oil well is only economically useful if its crude can reach a refinery.

The California Public Utilities Commission itself has recognized the importance of this system, describing the San Pablo Bay-KLM system as the primary pipeline connecting Central Valley crude oil with Northern California refineries and one of only a few pipeline routes capable of moving crude out of the Central Valley. Losing that transportation option leaves producers increasingly dependent upon southbound pipelines and, ultimately, expensive trucking.

That is precisely the problem confronting California's independent producers.

Without sufficient pipeline capacity, Kern County barrels must compete for limited southbound transportation or be loaded onto trucks and hauled over the Grapevine into the Los Angeles refining market. Trucking thousands of barrels of crude hundreds of miles is expensive, inefficient, and environmentally counterproductive. Pipelines remain the practical transportation backbone connecting California production with California refineries.

The financial problems facing the pipeline system also illustrate what happens when California oil production declines. CorEnergy previously reported that declining throughput was making the pipeline system increasingly difficult to operate economically. CRC's acquisition brings substantially greater financial resources behind assets that otherwise faced an uncertain future.

There is an important lesson here for policymakers: California cannot dismantle one part of its petroleum infrastructure without damaging everything connected to it.

Oil production, pipelines, and refineries operate as a system. Reduce production enough and pipelines lose the throughput necessary to remain economically viable. Lose pipelines and producers lose access to refineries. Lose refining capacity and California-produced crude loses its market. Each closure places additional pressure on whatever infrastructure remains.

The alternative is hardly an environmental victory. California still consumes petroleum. If the state makes it increasingly difficult to move California crude to California refineries, those refineries must rely more heavily on crude transported from somewhere else, including waterborne imports.

CRC has also warned that the San Pablo Bay Pipeline shutdown eliminated access to Bay Area refineries, increased transportation costs, and forced greater reliance on southbound capacity. Restoring this transportation corridor would therefore provide something California producers desperately need: options for getting their barrels to market.

The CPUC's approval represents an important step toward preserving California's petroleum transportation infrastructure. The acquisition does not solve every challenge facing independent producers, but maintaining viable pipeline routes between producing fields and refineries is fundamental to keeping California barrels competitive.

For CIPA members, the equation is straightforward: California can produce the world’s most responsibly regulated crude oil, the only crude that is compliant with California’s climate program, but if there is no economical way to move those barrels from the field to a refinery, production eventually stops.

Keeping these pipelines viable keeps California oil moving, California workers employed, and California-produced energy in the marketplace.