Chevron Is Handed Another Setback on Point Arguello

In another setback for Chevron Corp. and its partners, staff of the California Coastal Commission sided with Santa Barbara County and recommended that oil from the long-idle Point Arguello offshore project be shipped by pipeline, not tanker, according to a staff report released Tuesday.

The recommendation, which will be taken up by the 12-member commission at its April 10 meeting, would reject an appeal by Chevron and its 17 partners to overturn a November decision by the Santa Barbara County Board of Supervisors that denied a request to move oil from the $2.5-billion project by tanker.

If the commission accepts the recommendation, it would mean yet another obstacle in Chevron’s attempts to gain permission to ship oil by tanker from the project, which has sat idle atop one of the nation’s largest oil reserves despite completion three years ago. County and company officials have been wrangling over the best way to transport oil from the project to Los Angeles refineries.

“We are dismayed that the staff of the California Coastal Commission, which is charged with representing the interests of the entire state of California, can ignore what we believe to be substantive issues in our appeal and can so blithely disregard concerns regarding Santa Barbara County’s decision,” Chevron spokesman G. Michael Marcy said Tuesday.

But Tom Rogers, chairman of the Santa Barbara County Board of Supervisors, said: “I’m pleased to find that their analysis comes out the same as ours did, but I know it’s only preliminary.”

It’s unclear what action the commission will take, though two years ago they ruled against a similar Chevron request for tanker shipments. If the commission doesn’t accept the recommendation, then the issue goes to a public hearing for further discussion. If commissioners do accept the recommendation, then Chevron can go back to the county and try again, or can go to court.

“It’s not a foregone conclusion,” said Thomas W. Gwyn, the commission chairman, who said he had not read the staff report as of Tuesday night. “But it is clear to me that the grounds for taking an item on appeal are considered fairly narrow, and we’ll have to read the report and hear from the staff attorneys as to whether or not the county had enough information to comply with its own local coastal program, which would be a critical issue.”

Marcy would not say what course Chevron would take if the commission acts against it. “We remain confident that the commissioners themselves will take a broader and more considered view than their staff.”

The fate of the project has drawn national interest. Last fall, in the middle of the Persian Gulf crisis, the federal Energy Department sent mediators to Santa Barbara to help the two sides hammer out a compromise; they returned to Washington without success.

Last month, Energy Secretary James D. Watkins wrote coastal commissioners urging them to reconsider the Santa Barbara County decision.

Chevron officials have said they would like to ship oil to Los Angeles area refineries by tanker for no more than four years, while a proposed pipeline is completed.

But officials in Santa Barbara County, site of a massive 1969 spill from an offshore platform, fear tanker spills such as those from the Exxon Valdez in Alaska and the American Trader in Huntington Beach. They have backed a proposal to ship oil from the project by existing pipelines, which they say would lead to less air pollution and lower the risk of oil spills into the marine environment.

Chevron has argued that the proposed alternative would be too costly, would not move all of the project’s production, would pose environmental, health and safety risks, and would require huge amounts of a scarce blending stock to move the viscous crude through unheated pipelines.

In its report, the coastal commission staff apparently echoed the county’s position.

“Chevron failed to demonstrate the infeasibility of pipeline transportation for this Point Arguello Project,” the report said.

The staff estimated that up to 40,000 barrels a day of the project’s estimated maximum production capacity of 100,000 barrels a day could be feasibly moved through such existing pipelines.

Meanwhile, officials at both Chevron and the Department of the Interior denied that the agency had proposed reducing royalty payments paid by the Point Arguello partners as a way to subsidize pipeline shipments of crude from the project.

On Tuesday, the San Francisco Chronicle quoted unidentified sources as saying the department was proposing to give the partners a break on future royalty payments to get oil flowing from the project. Interior Secretary Manuel Lujan Jr. met with Chevron U.S.A. President Will Price on Monday.

Marcy denied that the subject came up during the 15-minute meeting and denied that such a proposal was on the table. In any case, Chevron issued a statement from Price arguing that such a proposal “doesn’t make much sense to us.”

In Washington, however, Lujan spokesman Steven Goldstein said it was Price who brought up the idea, but only as part of a broader discussion of Point Arguello. He added that Lujan did not offer any commitments or proposals. He said Chevron requested the meeting, which was simply “an exchange of information.”

Other federal officials familiar with the project confirmed that such a proposal had been floated unofficially in the past as a way to break the deadlock between the county and Chevron. But the officials say such proposals never got very far.

While Chevron awaits final decision on its appeal, it is going ahead with plans to begin limited oil production from Point Arguello. About 20,000 barrels a day of oil should begin flowing through existing pipelines by summer.