April 3, 2013 / 10:30 PM / in 4 years

Phillips 66 seeks permit for facility to receive crude by rail

HOUSTON (Reuters) - Phillips 66 (PSX.N) is seeking a permit to build an offloading facility at its Washington State refinery to increase rail shipments of cheap inland U.S. and heavy Canadian crude.

The permit application, filed this week with Washington's air pollution regulator, came as crude-by-rail has gained scrutiny because of two derailments of Canadian Pacific Railway (CP.TO) trains where cars carrying crude leaked.

One of those derailments occurred on Wednesday morning in northern Ontario, where two of 20 cars that went off the tracks leaked crude oil. CP said the oil was contained.

The other occurred a week ago in Minnesota when 14 cars derailed, spilling nearly 15,000 gallons of Canadian crude. The Minnesota spill is under investigation by federal officials.

Last week's accident was the first major spill of crude transported by rail since booming North American oil production prompted a huge rise in moving crude by rail because pipelines' capacity has yet to catch up with demand.

Both were mixed freight trains, with a portion of the cars carrying crude oil. Phillips 66 is seeking to build a facility that can accommodate 100-car "unit trains," or trains that carry a single cargo - in this case, crude oil.

Phillips 66 spokesman Rich Johnson said the company's proposed rail facility will be able to offload 30,000 barrels per day.

A 100-car unit train can carry 69,000 to 81,000 barrels of crude, according to a recent report by Deutsche Bank, but all cars don't necessarily have to be offloaded in a single day.

Phillips 66 said in the application that, if the permit is approved, construction could start this summer and be finished by December 2014.

The move was expected, as company executives have said Phillips 66 was considering building a rail rack to increase shipments of cheaper crudes to the 100,000 barrels-per-day (bpd) refinery in Ferndale, Washington.

The refinery now receives about 20,000 bpd of such advantaged crude, but a rail facility will allow much larger shipments.

GROWING RAIL

Phillips 66 is among many refiners tapping into inland U.S. and Canadian crude, both of which are cheaper than global crudes, via rail.

Last month the company struck a deal to ship up to 40,000 bpd of crude to its Washington and New Jersey refineries from pipeline operator Enbridge Energy Partners' EEP.N unit train terminal in North Dakota, home to the prolific Bakken shale oil play. That crude also could potentially be moved via rail to the company's U.S. Gulf Coast refineries as well.

In another agreement, Targa Resources Partners NGLS.N will unload crude shipped by rail from Canada in Washington State and barge it to the company's Ferndale refinery.

Phillips 66 also has a deal with Magellan Midstream Partners (MMP.N) to use its pipelines to transport Mississippi Lime shale oil to its nearby refinery in Ponca City, Oklahoma.

Other Washington State refineries are ahead on such facilities.

Tesoro Corp TSO.N last year started up a new offloading facility to take up to 50,000 bpd of Bakken crude at its 120,000 bpd Anacortes, Washington, refinery. And BP Plc (BP.L) is awaiting a permit to build an offloading facility to receive up to 60,000 bpd at its 225,000 bpd Cherry Point refinery in Blaine, Washington.

Reporting by Kristen Hays; Editing by David Gregorio and Phil Berlowitz

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