Chevron counting on Lands Commission to approve marine oil terminal lease
El Segundo's Chevron refinery is counting on the state Lands Commission to approve a new lease for its marine terminal in the Santa Monica Bay, despite protests from environmentalists over terms of the long-term deal.
The proposed lease - which comes up for a vote today - would lock in Chevron's use of its terminal about a mile and a half offshore for another three decades, and at a base price of roughly $1.3 million per year that would escalate annually.
The lease covers roughly 221 acres of the bay where tankers carrying crude oil and raw materials can link up to two berths that are connected to the refinery via underwater pipelines.
Chevron maintains the terminal - which has been around for the duration of the plant's nearly 100-year-existence - brings in 240,000 barrels of crude oil daily and is essential to refinery operations. Without it, public and government affairs manager Rod Spackman said bluntly: "We would cease to exist."
"We've always had an operation of this kind, and it's a fundamental element of the operation of our business," Spackman said.
Beyond that, the lease would ensure the refinery's future viability and allow Chevron to make investments needed to meet low-carbon fuel standards required by the state's 2006 global warming act, Spackman said.
"A lease that's reasonable and appropriate allows us the flexibility to do that," he said. "It would make no sense ... if you didn't have the flexibility to amortize that investment."
The commission's meeting in San Diego marks its last under the current administration. The three-member panel will retain two commissioners - Controller John Chiang and Finance Director Ana Matosantos - but bring on incoming Lt. Gov. Gavin Newsom next year.
The lease terms were negotiated by the commission staff, which can recommend leases on state lands covering a few months to 49 years, commission Executive Officer Curtis Fossom said.
The proposed deal assigns a base rent of $1.29 million, which would be adjusted each year based on the Consumer Price Index. It also calls for Chevron to pay $2.4 million to cover prior years in which the lease apparently was in question.
According to a staff report, the commission in 1977 assigned a 15-year lease to the marine terminal, including three 10-year renewals. When the initial term expired, Chevron exercised the first of the extensions with the belief that it could do so without commission approval. But the commission disagreed, and has considered the lease to be in a "holdover" phase.
Not all agree the length of the proposed deal or the agreed-upon annual lease payments are fair terms.
Among those raising concerns is the environmental group Heal the Bay, which recently penned a letter to the state along with Santa Monica Baykeeper and Defenders of Wildlife, Heal the Bay's Mark Gold said.
Gold, the group's president, argues the value of the lease for the use of the bay is far too low, considering the environmental risks, such as an oil spill or a whale strike by a tanker.
"We just feel that this is a major issue that has kind of gone under the radar. It's about tankers that are sitting in the Santa Monica Bay every day," Gold said. "The state of California, especially during this economic crisis, should not be giving away priceless resources.
"Each and every day we look out at Santa Monica Bay, and it's the most beautiful view you can have in Southern California, and those tankers are there. ... There's got to be a price on that."
And Gold argues an environmental impact study didn't go far enough in analyzing alternatives to Chevron's offshore terminal - including the feasibility of using pipelines linking Chevron to the Port of Los Angeles.
Such a shift was not supported by the Lands Commission staff, which says in the report that while moving terminal operations to a nearby port could be a "viable alternative," it also could result in the loss of an alternative supply of crude oil if port operations were disrupted by a terrorist attack or natural disaster.
Chevron's Spackman also rejects the idea, saying the existing infrastructure isn't capable of bringing in the amount of raw material needed for daily refinery operations, which would force the company to construct a new pipeline.
But Gold said he favors a shorter lease - such as a 10-year deal - so the alternative could at least be further analyzed.
"We're getting painted by Chevron as saying we're trying to shut down the refinery, which is ridiculous," Gold said. "We could be seizing the day and saying, we don't want another Valdez (oil spill), or another Gulf oil spill. ... We're just saying 30 years is way too long."
Chevron hasn't faced a significant spill since 1991, according to Spackman, who has worked in El Segundo for 25 years.
That spill released 21,000 diesel gallons of oil into the bay, according to old Daily Breeze reports, while the 1989 Exxon Valdez incident sent an estimated 11 million gallons of crude into the Prince William Sound. The recent BP spill in the Gulf of Mexico was recently estimated at 172 million gallons.
But Chevron's March 1991 spill shut down Malibu Surfrider Beach as an oil slick formed over the water.