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Relief for California gasoline prices may be riding the rails

March 21, 2013|Ronald D. White
  • Rail cars are loaded with crude oil at the Casper Logistics Hub in Wyoming. Cheap oil moving by rail may help lower California gasoline prices.
Rail cars are loaded with crude oil at the Casper Logistics Hub in Wyoming.… (Alan Rogers / Casper Star-Tribune…)

California drivers have long suffered from the state's geographical isolation from the nation's major oil pipelines that pump crude to domestic refineries.

That forced California to rely on much more expensive imported oil. In 2012, California imported more than half of its oil from overseas (50.7%) for the first time ever.

But that has begun to change. In the short term, analysts say California prices should fall to the $3.75 to $4 range for a gallon of regular gasoline in the coming weeks.

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Longer term, there should be more relief as the nation's railroads move record amounts of cheap, domestic oil on tank cars, with some of it headed for California.

In 2008, BNSF, a railroad that serves the West Coast, moved 1.3 million barrels of oil. In 2012, it moved 100 million barrels. Most of BNSF’s oil originates in North Dakota.

"You could say that 'there's a train a-coming,'" said Tom Kloza, chief oil analyst for the Oil Price Information Service, "and its carrying oil."

Patrick DeHaan, senior energy analyst for GasBuddy.com, said that access to cheaper domestic crude should mean that California gasoline prices will be cheaper in the long run.

"The elephant in the room is rising oil production from places like North Dakota and Canada," DeHaan said. "Everyone wants the cheap oil."

What companies are involved? Chevron Corp. of San Ramon is one that talks about it. Valero Energy Corp., the nation's biggest refiner, is another. So is Phillips 66, formerly the refining arm of oil giant ConocoPhillips.

"Frankly, rail looks to us that it's going to be very, very viable into the West Coast," said William R. Klesse, chairman and chief executive of Valero.

Chevron officials say they are already moving cheaper oil from North Dakota into California, some on barges.

"We know how to get it in there. It's kind of trains, planes and automobiles," Michael K. Wirth, executive vice president for downstream and chemicals for Chevron, said at a conference for investors earlier this month.

"We use rail cars to terminal where we've barged into Richmond. So it's doable and we have done it and we'll continue to do it," Wirth said.

Meanwhile, a third straight week of gasoline price drops has brought some individual Southern California gas station prices below $4 in recent days, according to the Automobile Club of Southern California's Weekend Gas Watch.

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