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Phillips 66 cuts crude-by-rail shipments to Ferndale refinery due to state law: letter

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Phillips 66 cuts crude-by-rail shipments to Ferndale refinery due to state law: letter


Puget Sound refineries eye cuts as 'ban' takes root

About 175,000 b/d of crude shipped by rail through Washington

States, federal government prepare for legal fight

Washington — A new Washington state crude-by-rail law has forced Phillips 66 to significantly cut shipments of Bakken crude to its Ferndale Refinery, the refinery's manager told federal regulators.

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"Phillips 66 has drastically reduced the scheduled deliveries of crude oil to be unloaded at the Ferndale Refinery rail rack for the remainder of the year, including a 30-day period when no barrels of crude oil will be unloaded at the crude oil rail facility," Jolie Rhinehart, the manager, said in a September 23 letter to the US Department of Transportation's Pipeline and Hazardous Materials Safety Administration. The letter was made public this week.

"This reduction in rail rack unloading volumes is solely because of [the Washington state law] and comes at a significantly negative impact to refinery profitability," Rhinehart wrote.

Located on the Puget Sound, about 20 miles south of the Canadian border, the Ferndale Refinery has crude capacity of 105,000 b/d, according to Phillips 66's website. It is one of five refineries in Washington state which receive a total of about 175,000 b/d of crude by rail, about 94% of that crude originating in North Dakota.

These refineries, along with oil-producing states, producers and refining trade groups, are fighting a Washington law that prohibits the unloading of any crude from a rail tank car unless the oil has a vapor pressure of less than 9 psi, potentially setting a de facto ban on Bakken crude shipped by rail. The law took effect in July.

Marathon Petroleum, which operates the 120,000 b/d Anacortes refinery about 70 miles north of Seattle, said, because of the law, the value of its crude rail offload facility there "could be severely limited by any regulation impacting the amount, grade and type of crude that could be handled by the facility."

Similarly, the state law would prevent BP's Cherry Point Refinery from receiving and unloading crude at the rate allowed under a permit issued by the Northwest Clean Air Agency, a government agency, in 2013, the company wrote.

The 9-psi standard only goes into effect after a refinery increases its crude-by-rail imports by more than 10% from 2018 reported volumes. The changes essentially place a cap on a refinery's imports of crude shipped by rail through the state.

North Dakota and Montana have petitioned DOT's PHMSA to block the law. The petition has drawn over 4,200 comments to PHMSA.

"In addition to unnecessarily and substantially raising the cost of transporting a vital feedstock to Washington refineries, the law poses a significant threat to national security by setting the dangerous precedent that individual states may dictate interstate transportation of critical commodities to the detriment of United States refined petrochemical production and export capacity," Kari Kutting, vice president of the North Dakota Petroleum Council, wrote in a letter to PHMSA.


Washington has threatened to fight any attempt to block the state law in court.

The potential legal battle could focus on whether the state law is consistent with the federal Hazardous Materials Transportation Act, the federal statute which regulates the transport of hazardous materials in the US.

"The Washington law is nothing more than a thinly veiled attempt to prevent Bakken crude oil from being unloaded at Washington's refineries," wrote Richard Moskowitz, general counsel with American Fuel & Petrochemical Manufacturers, a trade group. "The Washington law is an obstacle to the safe transportation of hazardous materials and erodes the regulatory uniformity guaranteed under the HMTA."

But, Julian Beattie, Washington state's assistant attorney general, wrote that if PHMSA blocks Washington's 9 psi vapor pressure limit while allowing North Dakota's 13.7 psi limit "it will draw an arbitrary line that places Washington communities at risk while implicitly establishing North Dakota's limit as the de facto national standard."

"PHMSA's mission is to protect people and the environment, not to reward North Dakota for winning a regulatory 'race to the bottom,'" Beattie wrote.

A decision from PHMSA is expected later this year.

-- Brian Scheid,

-- Edited by Valarie Jackson,

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