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Originally published Saturday, August 23, 2014 at 8:01 PM

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Why fracking boom isn’t driving down Seattle gas prices

Gasoline prices here have remained stubbornly high, even as an abundance of cheap crude from a surge in so-called fracking contributes to a price drop in most other states. The gap between local prices and the U.S. average has more than doubled since 2011.


Seattle Times business reporter

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In Seattle, America’s energy boom can be seen but not felt. At least not at the gas pump.

Trains bearing crude oil cross the city’s busy core every day, connecting North Dakota’s prolific oil fields to refineries on the coast.

Yet gasoline prices here have remained stubbornly high, even as an abundance of cheap crude, from a surge in so-called fracking, contributes to a price drop in most other states.

In fact, the gap between what a gallon of regular gas costs in Seattle and the U.S. average has grown: The difference was 47 cents for the second week of August, up from 36 cents a year ago and 17 cents in 2011.

On Monday, motorists in Seattle were paying $3.901 for a gallon of regular — 64.5 cents more than drivers in oil-rich Houston, according to the U.S. Energy Information Administration.

East of the Rockies, drivers have begun to benefit from the nation’s new oil boom, and policy planners who long feared energy scarcity are now talking about abundance.

Prices in the Seattle area, however, show that the oil bounty is not shared equally.

“It seems to make no sense at all,” said Sue Anderson, of Redmond, who was filling up her Subaru Impreza at a Redmond gas station on Wednesday. She notices the difference when she visits family in Minnesota, Anderson said.

U.S. oil production has soared to levels not seen since the 1980s as, starting in 2010, producers in Texas and the Midwest began coaxing large amounts of crude out of fractured shale rock by injecting high-pressure jets of water and chemicals. Canada’s rich oil sands also have greatly contributed to a glut in North American crude.

But Western states are disconnected from Eastern and Midwest energy supplies due to a dearth of pipelines, and there’s limited capacity to unload crude trains coming from North Dakota and other oil fields. Taxes, which tend to be higher in Western states, also add to the bill.

Oil companies are pushing for more train terminals and pipelines linking Canada’s oil sands to refineries here, and experts say that if many of those projects come through, the gasoline price gap between the West and the rest will shrink. But many proposals face stiff scrutiny, spurred by Western states’ strong environmentalist movements and by mounting concerns about the safety of shipping crude via train.

In any case, local drivers could wait years before cashing in on America’s energy bounty.

“There’s a paradigm shift that we’re going through,” says David Hackett, president of Stillwater Associates, an energy consultancy based in California. “So far the West Coast hasn’t participated in the way the rest of the country has.”

Not enough cheap oil

Experts estimate that about 150,000 barrels of oil per day from the U.S. interior make it to the Pacific Coast via rail. Most of it, squeezed out of North Dakota’s Bakken shale, goes to refineries in Anacortes, Cherry Point and Tacoma; a small portion, about 17,000 barrels a day, goes to California.

It’s enough to make environmentalists and safety watchdogs uneasy, and infuriate North Dakota farmers who have trouble shipping grain to Pacific Northwest ports due to busy trains.

And it certainly pads the refiners’ profits. About 40 percent of Tesoro’s Anacortes refinery’s production needs are met with crude from North Dakota, which in the second quarter of 2014 averaged $12 per barrel cheaper than Brent crude, the benchmark for most waterborne oil. Alaska North Slope crude, shipped by tanker to Pacific Northwest and California refineries, trades close to the Brent benchmark at about $108 per barrel.

But that North Dakota crude is only about 5 percent of the oil needed by West Coast refineries, not enough to make a big dent in the humongous amount of more expensive crude from Alaska and overseas that those refineries buy.

While foreign-oil imports to the U.S. Gulf Coast have plummeted by 40 percent over the past eight years, West Coast imports have remained constant. Moreover, shipments from Alaska, where production is waning, still account for a major chunk of West Coast refineries’ appetite, and are more expensive than oil from shale.

These pricey inputs keep the cost of making gasoline on the West Coast higher than elsewhere in the U.S.

That equation could be radically altered by the end of the decade with oil transportation now proposed, combined with the potential development of the Monterey shale field in California.

A proposal for a receiving terminal in Vancouver, Wash., for oil trains from North Dakota could add 360,000 barrels a day of crude-by-rail deliveries, more than quadrupling the amount of cheap domestic crude coming this way.

If the project is approved by Gov. Jay Inslee, it could be built in nine months, say Tesoro and Savage, the companies pitching it. Most of the oil unloaded there would be shipped to refineries all over the West Coast.

“That’s going to have a lot of impact,” says Tom Kloza, chief oil analyst for Gas-Buddy, who expects the gap between the West Coast and the rest of the U.S. to significantly shrink by the end of the decade.

The state Department of Ecology estimates that if all projects get approved, the average number of loaded oil trains arriving to coastal Washington daily could reach more than 12, from about 2½ currently.

More supplies of Canadian crude could also bring down the cost of making gas.

Right now a pipeline bringing oil from Alberta to British Columbia and the Puget Sound region is operating at a maximum capacity of about 300,000 barrels per day.

Kinder Morgan, which operates that pipeline, wants to triple its capacity, but the company’s proposal is under review.

Some critics wonder, however, whether the buildup will have any meaningful impact on local prices, especially as the oil industry chips away at a ban on exports of U.S. crude.

Eliminating that ban would tie domestic crude production more strongly to oil-hungry global markets, which would raise its price.

“If they get their way, all that Bakken crude will simply be transferred to vessels and shipped to Asia,” said Eric DePlace, a researcher with the Sightline Institute, a pro-environment policy-research center in Seattle. He added that Canadian crude, not subject to the U.S. export ban, could also be shipped out of the Vancouver terminal.

Critics increasingly question whether the added railway traffic and exposure to dangers of spills and explosions are worth it, even if the price of gasoline comes down.

Federal regulators have called for an overhaul of the train-car fleet after concluding that oil from North Dakota is particularly volatile.

Explosions in Quebec and in North Dakota have stoked concern in populated areas that see increasing oil traffic.

In Seattle, where oil trains headed to Anacortes and Cherry Point pass near the stadiums, Pike Place Market and a crowded waterfront, the City Council last month called for a federal ban on crude shipments in cars regulators deem unsafe.

Ángel González: 206-464-2250 or agonzalez@seattletimes.com On Twitter @gonzalezseattle



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