The Gristle

A Stitch In Time

Wednesday, September 28, 2016

A STITCH IN TIME: The purpose underlying Whatcom County Council’s emergency moratorium came startlingly into focus this week as scores showed up to share with policymakers the pros and cons of permitting new unrefined crude oil and natural gas export projects through Cherry Point. Simultaneously, despite the erected ban, one energy export giant closes a deal this week with Alcoa Intalco to acquire the existing pier that services the Ferndale aluminum smelter for an export project of as-yet-unclear dimensions.

Petrogas Energy Corp. has reportedly agreed to purchase the pier from Intalco for $122 million. This is a markedly inflated sale, given the assessed value of the entire Intalco facility, pot lines and all, is just $67 million, according to county tax records. The assessed value of the dock is estimated at just a portion of that total, little more than $10 million, which means Petrogas acquired the dock for about ten times its paper value. Under the agreement, Intalco can continue to use the dock, pocketing a hundred million dollars for the favor.

With the dock undoubtedly comes grandfathered shoreline and tideland permits that predate the federal Environmental Protection Agency. The Canadian energy firm has applied to take on the Aquatic Lands lease between Intalco and the state Department of Natural Resources, which includes the pier in question.

According to industry reports, the wharf is allowed “a maximum of 48 vessel dockings per year for all products (Intalco as well as Petrogas)” and plans to handle exports and imports of up to 30,000 barrels a day of liquid propane gas (LPG) and sell propane to the United States and Asian markets. Much of that may arrive by train.

This is not the first time Petrogas has spent a small fortune acquiring old infrastructure at Cherry Point assessed at a fraction of that sticker price.

In 2014, the company bought two aging above-ground storage tanks and obsolete equipment from Chevron adjacent to the Ferndale smelter for $242 million. The acquisition of the the Chevron storage facility helps leverage Petrogas for bulk shipments of propane, butane and iso-butane (collectively “LPG”). The assessed value of the Neptune Beach property is $26 million.

Petrogas invested more than $40 million in improvements to the facility after County Planning and Development Services issued a SEPA determination of non-significance for the replacement of aging compressors and an evaporative condenser and power generators. Well, why not? Chevron’s equipment has aged in place for several decades, its impacts well understood.

In July, the operations manager for Petrogas West told Council that proposed changes to the county’s Comprehensive Plan that govern Cherry Point industries “would make it difficult, if not impossible, to obtain permits to do the necessary maintenance, renovation or alteration of the dock or other facilities we have here. The Petrogas Terminal is about 50 years old and it requires constant efforts to ensure compliance with the many regulations that affect it,” Andrew Gamble reported on behalf of the Ferndale terminal.

The acquisition of Intalco’s pier and its operational covenants undoubtedly eases those dock concerns, but it also underscores how a door left open a tiny crack invites being smashed wide open by influential energy export industries—and a facility deemed environmentally nonsignificant thus becomes very significant indeed.

“For most of its existence, Ferndale has been the backwater of natural gas liquids (NGL) markets,” the RBN Energy blog noted following the 2014 sale by Chevron. “But now NGL markets are changing dramatically due to the onslaught of new production from the shale revolution.  And exports have become the market of choice for NGL surpluses.”

Shortly after the purchase, Petrogas announced merger agreements with AltaGas LPG and Idemitsu Kosan Co. Ltd. of Tokyo to export Canadian propane and butane products to Asia from the Ferndale facility.

Calling west coast NGL exports “a brand new game,” RBN Energy notes that unless a similar export facility comes online in Longview, the Ferndale terminal will remain the only functioning butane and propane export facility on the west coast. In March, Port of Longview commissioners rejected that competitive terminal at its proposed site, leaving Ferndale as the only functioning facility that can connect North America’s NGL surplus to Asia. The value of the Ferndale investment thus increased considerably.

Placing to the side momentarily profound issues of health, safety and ecosystem, is Whatcom County collecting reasonable economic value from unique, leveraged properties traded and swapped in global markets for hundreds of millions of dollars but with local assessed property valuations of a fraction of the purchase price? On the issue of job creation, the same numbers of people can flip a switch or open a valve to transmit unprocessed, unrefined product 20 times just as easily as they can operate them once—though these projects are enormously profitable to the companies and their investors, they seldom scale in terms of amount of employment, and they’re under no special requirement to create local jobs at Cherry Point.

Circling back, those issues of health, safety and ecosystem are central to Council’s moratorium.

“One of the reasons we need this emergency ordinance is we weren’t able to meet our obligation in the Comp Plan of protecting public health and the environment because of a timeline with pending permits,” Council member Todd Donovan explained when the measure was first introduced. “This is a time out.”

The pace at which new fuel export proposals arrive by way of arcane and opaque agreements between industries, coupled with the uncertainty of value or benefit for Whatcom’s citizens, are excellent reasons to continue to take that time.

Silver Reef Smashmouth
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