The uncommon Diamond pipeline

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If it looks like a duck, swims like a duck, and quacks like a duck, it is probably a duck.

With an expired permit to cross Arkansas waterways and drilling problems on the line, what started as a rumor may end up as a dry pipeline. Diamond is an uncommon pipeline. Not in the sense of being weird, peculiar, or bizarre. It looks like other bulk crude pipelines, but it is not a common carrier. Diamond is a private pipeline for the Valero Memphis refinery.

Private pipelines don’t serve the public interest and don’t have the right of eminent domain. Private pipelines must negotiate with landowners to lease their surface rights to build, operate, inspect and maintain the pipeline. Landowners may or not decide to give private pipelines an easement; they own the land and have rights to privacy, safety, and security. Landowners have the title to their home, farm, or estate and constitutional private property rights.

A hose and a bucket

Please make two yard signs, one for “Cushing, OK.” and the other for “Valero, TN.” Place Cushing by an outdoor water faucet. Connect a 100-ft. long garden hose with the hose extended and place Valero at the end. Open the faucet all the way. This is what Diamond will look like on day one, unless it starts to leak. Take a couple of pictures of your water pipeline.

The Diamond PSC Application says, “The pipeline will include a truck unloading facility located in Van Buren County, Arkansas, for the purpose of receipt and transport of oil produced in Arkansas or elsewhere by multiple potential users of the proposed pipeline under common transportation rates to be filed and posted…” Here is where things get tricky. What started out as a simple, low-cost project is now a complex system with many requirements at twice the cost.

Where is this facility? Who would want to ship crude from Van Buren to Memphis, just to take a ride through Arkansas?

To understand how the phantom facility would work, get three buckets and fill them up with water. Use red, yellow, and green food coloring to distinguish the new shippers, and line-up the buckets at the midpoint of the hose. How would you inject the red water into the hose filled with running water? Let’s say you find a way and you can make it work for the yellow and green buckets. What would you end up with at the Valero side?

PAA can prove me wrong by sending a picture of the phantom facility and the new Valero terminal for the “other” shippers. Will they?

It is all about cheap crude

There are two main sources of light sweet crude for Valero. Imported crude stored in St. James, La., and domestic shale crude stored at Cushing, Okla. Cushing has storage capacity of 85 million barrels of oil. Most of the time, imported crude trades at a premium to domestic crude, but fracking is not all milk and honey.

Refineries buy crude oil and sell gasoline, diesel, and other petroleum products at market prices. To make a profit, Valero needs a reliable supply of low-cost crude. Investing in Diamond and making 10-year purchase agreements, seemingly gives Valero a competitive advantage.

The cat is out of the bag

A Reuters January 2015 report describes 81 U.S. crude pipeline projects, including Diamond. This report says, “Valero in 2013 received 100,000 barrels per day (bpd) of Bakken crude railed to St. James, Louisiana, then shipped to the refinery via the Capline pipeline. But volumes to Valero have declined as Bakken shipments to the East and West coasts have ramped up. What the 440-mile Diamond Pipeline will do is route 200,000 bpd of cheaper crude supplies to Valero’s 195,000 bpd Memphis refinery. A Cushing-Memphis pipeline would shorten the distance and save costs.

The simplest explanation is usually correct

Investing $900 million in a 100-year pipeline is the price of denial. Guzzlers will be forgotten. The Electric Avenue will soon be the new normal, the common carrier of the future.

Dr. Luis Contreras

1 COMMENT

  1. These are uncommon concerns, not just an opinion. PAA can send a picture of the two missing facilities, the truck unloading and the truck offloading in Memphis.

    There are two types of pipelines: private (cheap) and common carriers (expensive).

    Diamond is a private line for Valero Memphis, a 50/50 joint venture. The refinery needs 195,000 bpd and Diamond capacity is 200,000 bpd.

    Who would want to ship crude oil from Van Buren County to Memphis where Valero is the only refinery and the pipeline is full?

    The Diamond project goes back to at least 2014 at a cost of $900 Million. The phantom facilities were added to the story to take private property — we have Eminent Domain, Diamond claimed.

    To service other shippers, Diamond would need the truck unloading facility ( a large station with access roads, storage tanks and pumps to inject the crude into the pipeline at 1400 psi) and a receiving Terminal Facility in Memphis to store and offload crude for the other shippers, on access roads.

    These two facilities would double the cost of the project and would require procedures to keep shipments separate.

    They were included in the PSC application and used in County courts to claim Eminent Domain. Bottom line, the Valero Pipeline is what Diamond is all about, and PAA has a problem with landowners.

    PAA grants to rural fire stations, $5,000 per station, are all they can afford to prepare for spills 10 times the size of the Mayflower 2013 disaster. PAA will not pay for damages.

    Arkansans landowners and everyone in Arkansas have legal rights to own property and public health.

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