Pipeline repairs pressure local oil production, prices

Nov. 13—The temporary closure of a major pipeline carrying Central Valley crude to refineries in the Los Angeles Basin has forced Kern County oil producers to reroute shipments, find new customers for their barrels and, in some cases, accept significant price discounts.

Houston-based Plains All American Pipeline LP has offered no timetable for when it will be able to reopen its Line 2000 after shutting down the 120-mile, 110,000-barrel-per-day conveyance as a precautionary measure in July for repairs along multiple segments, followed by inspections and testing.

The disruption, an indirect result of pipeline insulation concerns originating with the 2015 Refugio oil spill, is giving some local producers headaches as they decide between costly workarounds like trucking and rushed service contracts — or actually shutting in their wells, which can present other problems.

Local oil prices have come down as a result of the closure, according to Kern County producer Berry Corp. The Dallas-based company told investors this month it had to sell a quarter of its production at a discount in the third quarter, and that it expects the pipeline outage to continue into the first quarter of next year.

A network of alternative pipelines crisscrosses Kern County, but how convenient they are depends on their proximity to where oil comes out of the ground. Complications arise from the fact refineries are geared toward specific blends of crude, limiting their flexibility to suddenly process greater volumes from a generally heavy-oil region like western Kern.

Another complication is that shutting in production dependent on thermal injections, as many wells are in Kern, risks freezing up underground conduits that take a lot of energy to reopen, if they can be reactivated at all.

Oil producers in the county have been more or less guarded in their comments on the problem.

Long Beach-based California Resources Corp. would say only that the outage has impacted a "limited number" of its barrels.

Bakersfield-based independent Ken Hunter observed that there aren't enough trucks available to carry the full volume of oil that doesn't fit into alternative pipelines to paying customers.

"All the users of Line 63 (a Plains feeder line affected by Line 2000's closure) will be significantly affected while it is shut down," Hunter said by email, because a large share of the oil produced in the valley goes south on that pipeline to a refining center in L.A. County.

Spokeswoman Cindy Pollard at Bakersfield-based oil producer Aera Energy LLC said the company, working closely with pipeline operators, found a way to continue production without interruption.

Aera has used limited trucking service to take barrels from the Midway-Sunset Oil Field to a Kern County tank farm, where it goes by pipeline to a refining center in Northern California, Pollard said. She was unable to say whether any of the oil's price was being discounted.

Plains purchased Line 2000 in 2006 as part of its $2.4 billion acquisition of the Long Beach-based company that developed, built and operated it, Pacific Energy Partners LP. The pipeline is referred to as a mainline system fed by regional feeders like Line 63.

In the first week of July, Plains contacted the CalFire Office of the State Fire Marshall to report that pipeline inspection equipment had detected corrosion significant enough to warrant digging it up to take a closer look, said the agency's assistant deputy director and chief of pipeline safety, Jim Hosler.

"They found a deviation, said, 'Oh, this is a concern. We're going to be proactive and we're going to address this,'" Hosler said.

Concerns were identified at about a dozen locations, mostly spread out between the Grapevine and the L.A. Basin, he said.

Since the Refugio accident spilled an estimated 3,400 barrels on a biologically diverse stretch of coastline in Santa Barbara County, vigilance has increased along Line 2000 and other pipelines with insulation intended to keep thick blends flowing smoothly.

Hosler said the spill brought to light a previously underestimated risk.

"There's a concern with insulated pipes and moisture getting between the insulation and the steel," he said.

Fixing the damage has required Plains to take out permits to access National Forest and private property, Hosler said, adding, "That's the reason for the extended downtime." He noted Plains is not currently awaiting approvals from the State Fire Marshall's office.

"They've met all of our expectations," Hosler said of Plains' attention to Line 2000.

Plains said safe, responsible operations are of utmost importance to the company, noting it chose to close the pipeline as a precautionary measure after a routine integrity inspection.

Spokeswoman Morgan Ash said by email the company continues to engage with pipeline customers as the company works toward safely returning the line to service.

"Further inspections ... are underway," she wrote, "and the return to service timeline will be determined as these inspections are completed."