September 11, 2013 / 10:30 PM / 4 years ago

UPDATE 1-Phillips 66, Targa end crude-by-rail deal

* Five-year deal ended after one year

* Phillips 66 building own rail facility at Washington refinery

* Company says will continue efforts to run cheaper crudes

By Kristen Hays

HOUSTON, Sept 11 (Reuters) - Independent U.S. refiner Phillips 66 has ended its five-year crude supply contract with energy logistics company Targa Resources Partners LP, the company said on Wednesday.

“Phillips 66 and Targa have reached a mutual agreement to end a five-year contract that began in August 2012 to provide rail unloading and barge loading services for crude oil at Targa’s Tacoma, Washington terminal,” Phillips 66 said.

Phillips 66 said the companies determined that “it was not feasible” to move forward with building the new infrastructure at Tacoma needed to ramp up shipments.

The terminal had been able to accept some crude by rail on mixed-freight trains, but needed to be expanded to offload up to 30,000 barrels per day from so-called unit trains, or those that carry only crude.

Phillips 66 declined to elaborate further, and Targa did not immediately return a call for comment.

The original deal, which was not announced until March 2013, called for inland U.S. and Canadian heavy crude delivered via rail to Targa’s terminal to be loaded onto barges for delivery to Phillips 66’s 100,000 barrels-per-day (bpd) refinery in Ferndale, Washington.

Those crudes are cheaper than imports and Alaskan crude. Phillips 66 is among many refiners with West Coast plants aiming to tap cheaper crudes more readily available in other regions.

The Targa deal also had allowed for crude delivery via barge to the refiner’s 120,200 bpd San Francisco-area refinery in Rodeo, California.

Phillips 66 is planning to build an offloading facility at Ferndale to increase current North American rail shipments of 20,000 bpd to 40,000 bpd, mostly from North Dakota’s Bakken shale oil play.

Phillips 66 did not explain the decision to end the deal with Targa, which was supposed to ramp up offloading capability to handle up to 30,000 bpd.

“We will continue to supply the Ferndale refinery with advantaged crude oil, primarily from the Bakken region, via alternate arrangements,” the company said.

Phillips 66 has a deal with Enbridge Energy Partners , announced alongside the Targa deal in March, to receive 40,000 bpd of Bakken crude. The shipments go to Ferndale as well as its 238,000 bpd Bayway refinery in Linden, New Jersey and potentially U.S. Gulf Coast plants.

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