Valero Pipeline – How can things get any worse?

How do you ship 350,000 barrels in a 200,000-barrel pipeline?

Most pipelines are designed to transport crude oil from shale plays where frackers “produce” crude to massive distribution hubs where crude is blended and stored in tank farms.

The Valero Pipeline is a private pipeline for the Memphis refinery. Valero is paying half the cost of construction, and giving Plains All American (PAA) a 10-year minimum-volume contract providing stable cash flow for a decade.

Minimum-volume contracts are like non-refundable airline tickets. If you don’t show up, you are out of luck. With a 200,000-barrel per day (bpd) contract, at say $5 per barrel, PAA would get $1 million per day, even if the Valero refinery is full. PAA will use the cash flow to pay distributions to investors and attract new investors to finance more pipelines.

Valero refinery expansion to 350,000 bpd

“The Permian Basin is a world class resource play and we are pleased to announce this strategic acquisition, which complements our existing assets that provide transportation and related services throughout the Permian Basin,” PAA CEO Greg Armstrong said in January 2017. The Permian Basin is a shale formation in Northwest Texas. It has one of the world’s thickest deposits from the Permian geologic period.

The $1.2 billion Permian Basin pipelines purchase by PAA seemed irrelevant at the time for the people opposing the Valero Pipeline. Now the big picture is clear, and what looked bad, now looks ugly. The PAA Investor Day presentation on May 24, 2017, included a slide explaining the flows of crude oil in and out of Cushing. The capacity of the Diamond Pipeline showed an increased flow of 150,000 bpd for a total of 350,000 bpd.

“How Safe is Plains All American Pipeline, L.P. and its 7 percent Dividend?” The March 2017 investment report says, “The [Valero] joint venture comes with an opportunity for future growth as well because Plains can expand the pipeline from 200,000 barrels per day up to 350,000 barrels per day if Valero needs more capacity.”

Increasing pipeline capacity

There are various ways to increase the Valero pipeline capacity. One way is to build a twin pipeline on the right-of-way. The cost of the line would be around $900 million and new permits would be required. Another way is to increase the pump stations along the line and cross your fingers. Diamond says the line was designed for 200,000 bpd, but only Diamond has the engineering design specifications for the construction, operation, maintenance, and decommission of the pipeline.

Threats to Public Health and the Environment

A twin pipeline would double the risk of rupture and increase hazards during construction of the line. More likely, the pressure of the line would be increased to transport 350,000 bpd. According to PAA, the maximum operating pressure for the line will be set at 1,440 psi. Increasing the flow rate to 350,000 bpd would increase the internal pressure of the line over 75 percent or 2,520 psi. This is a conservative estimate. Flow turbulence would increase the internal pressure and the likelihood of pipe ruptures.

Massive crude oil pipeline spills are frequent, predictable, avoidable events. PAA safety claims are false. PAA is not liable for damages and their historical performance is shocking. Arkansas counties on the path will pay a high price, and everyone in Arkansas will suffer.

Abuse of eminent domain

Did PAA have the right to take private property by force prior to requesting river crossing permits? The timeline of the project shows Diamond took involuntary permanent easements, one landowner at a time, claiming eminent domain. The route of the pipeline was kept secret giving Diamond unfair advantage over communities on the path of the pipeline.

The proper recourse is to stop construction, challenge land taking, demand full disclosure on capacity expansion, and demand intervention by Arkansas authorities.

Building resilience

Why would we even consider private profits over public safety and peace? Heat waves, wildfires, droughts, and massive floods, caused by a century of burning fossil fuels, can no longer be ignored.

Dr. Luis Contreras