Oil export company looking at the Port

The Port of Grays Harbor has entered into a property access agreement with a Texas-based company now exploring the possibility of using marine Terminal No. 3 as a crude oil distribution facility for product produced in North America.

The company, known as Grays Harbor Rail Terminal LLC of Pasadena, Texas, plans to “conduct certain feasibility studies regarding the possible permitting, siting and development of a facility for a unit train/marine crude oil terminal at the property,” according to the access agreement dated Sept. 11.

The Port had not previously publicly disclosed the agreement, which was obtained as part of public records requests made to the Port on behalf of the watchdog group Friends of Grays Harbor.

Under the agreement, the company has until Dec. 31 to conduct and complete its assessment of the terminal. The studies are expected to include soil, environmental, utility and engineering tests; project design alternatives, market potential, permitting, navigational channel and berth issues; easements, siting and development, and other “due diligence activities,” according to the agreement.

Port Executive Director Gary Nelson confirmed the agreement and said the process has just begun.

“It just essentially gives them the authority to go on the premises and do their preliminary site investigation,” Nelson said.

If permitted and built, the facility would be what is called a crude-by-rail operation with the parent company being U.S. Development Group, Nelson said. U.S. Development Group LLC is a Houston-based developer of rail logistics and terminal facilities.

In August, railroad company RailAmerica did not renew a similar agreement for Terminal 3 after considering the Hoquiam location as a possible coal storage and export facility since January 2011. At that time, a RailAmerica spokesman said the company was “shelving the Terminal 3 coal export project” because there is a “third party that has an interest in shipping something else from the terminal and thinks that would come to fruition more swiftly than the coal terminal.”

The Port notes in the agreement that 35 acres of the property currently is occupied by Willis Enterprises, and the oil distribution company agrees not to adversely impact or interfere with operations there as part of its study of the terminal.

The company, known as GHT in the new agreement, will pay the Port $7,500 a month through December.

Within 75 days, the agreement calls on the company to include a preliminary site plan for its proposed facility, along with a rail plan and timeline. It also must specify any anticipated or required berth improvements, a work timeline, a public access plan and a description of any needed rerouting of public roadways.

Finally within that time frame, GHT will be required to describe a financial plan for costs associated with the facility, and submit a list of needed permits along with a preliminary operations plan describing the anticipated volume of each train shipment, frequency of trains, vessel calls and number of new jobs to be created.

Another clause indicates the company will “facilitate necessary repairs and improvement to the Hoquiam river Railroad Bridge.”

Nelson said the shipments would be crude oil, much of it likely domestically produced, that will be stored and loaded on barges or vessels.

“It could go intercoastal, it could go to California or other refineries on the West Coast or it could go overseas,” he said. “If it is crude generated within the continental United States, it cannot be exported, but you could get crude from Canada.”

Much of the oil has been extracted from what is known as the Bakken formation in North Dakota or in Alberta, Canada, and this is a way to get it to the Pacific market, Nelson explained.

“There are several pipelines that are under consideration or are being permitted, but none are under construction that I am aware of,” Nelson said. The long-term forecast is for more crude to be available than could even be transported in a pipeline, he added. “It’s just an alternative mode of transportation” for the crude and it’s even “a little quicker than a pipeline,” Nelson contends, because “that stuff moves pretty slow.”

He described the current agreement with the company as a “generic lease.”

“They are in the process of putting the pieces together to see if this might be something that works for them,” Nelson said.

The size of the facility remains to be seen depending on the cost to bring rail cars to the Port along with the cost of marine shipping, he added. Initial talks estimate about one vessel a week, or a “fairly significant amount of volume.”

“I would expect within the next 30 to 60 days that would start getting refined,” Nelson said of the company’s plans.

Parent company U.S. Development Group has similar terminals in Houston, Texas, Rialto, Calif., San Antonio, Texas, St. James, La., Gardendale, Texas, Jacksonville, Fla., Arlington, Texas, Linden, N.J., and Baltimore, Md.

A full public review process would take place, Nelson noted, if the company came forward after December with a proposal to start operations. That would likely start with a lease from the Port, and an application to the Washington Department of Ecology for a State Environmental Protection Act permit.

“You have to have rail and rail capacity, which is one thing we have, and then access to deep-water traffic,” Nelson said. “I suspect there are other ports that are looking at this but I’m not aware who they might be.”

Nelson said he gave Friends of Grays Harbor a copy of the access agreement and recognizes that the biggest concern will be about spill control measures.

“That’s part of the due diligence,” he said. “I look at it as the opportunity to enhance the spill response in all of Grays Harbor… . It really could be the impetus to upgrade the protection of the estuary, but I’m sure it won’t be seen that way.”

Nelson noted the terminal has been eyed by other oil companies, too.

“There’s just a lot of interest in how to get surplus to the Pacific market,” he said.

Friends of Grays Harbor has concerns about the agreement but it’s too early to formally comment on the idea because there is no specific proposal yet, said Arthur Grunbaum, FOGH president.

“Without details, we can’t speculate whether adequate protections are or would be in place during transports and storage,” he said. “We can only guess that once the oil has been transported via rail to Grays Harbor, it would then be stored in a terminal tank and then transferred to tankers or barges.”

Most concerns, he said, revolve around “the accident that will happen.”

“We’ve learned from an oil spill response workshop that there is no method to contain an oil spill if it happens within the Harbor,” he said.