The parties have agreed to a Dec. 30 deadline for the port to furnish a compliance and construction plan for upgrading marine oil terminals to meet MOTEMS – Marine Oil Terminal Engineering and Maintenance Standards. The landmark MOTEMS rules establish minimum engineering, inspection and maintenance standards for oil terminals in California and are the first such standards to be implemented anywhere in the country.

Mike Galvin, Port of Los Angeles Director of Real Estate, says the port is on track to meet the deadline. The plan will address the port’s liquid bulk petroleum capacity needs, its MOTEMS compliance needs, how many berths should be operating, and the port’s plan for scheduling work under its capital improvement program, he said.

At issue is the fact that five of the seven marine oil terminal operators at the Port of L.A. have leases that are either due to expire in the near future or are month-to-month agreements – a scenario that does not lend itself to spending the big bucks required for the MOTEMS-required terminal upgrades that are typically amortized over a longer period of time.

The State Lands Commission estimates the cost of MOTEMS compliance at $11 million to $12 million per terminal. The port is refining its own estimate, which it expects to be significantly lower than its earlier projection of $50 million per terminal. The port’s new estimate is due to be included in its compliance plan.

The lease issue has created a delay of six months to a year in getting the MOTEMS work done at the Port of L.A., said Gary Gregory, chief of the State Lands Commission Marine Facilities Division. In a letter to Port of Los Angeles Executive Director Geraldine Knatz that confirms the Dec. 30 deadline, State Lands Commission chief Paul Thayer made it clear that the state doesn’t want the delays to continue.

“We are concerned that the current delays in complying with MOTEMS standards leave the environment and the integrity of the State’s energy supply system vulnerable,” Thayer wrote on July 8.

Tupper Hall, spokesman for the Western States Petroleum Association, agreed that resolution of the matter is critical. “We’re very hopeful that the port and its tenants can work something out because what is absolutely vital, next to safety, is ensuring that we maintain an adequate and efficient petroleum infrastructure to continue serving California consumers.”

Since MOTEMS became law in 2006, the state agency has been working with operators and ports statewide to audit each of California’s 33 facilities subject to the law and to develop repair and upgrade programs with timelines for getting the work done. The law set deadlines for the safety audits, but left the upgrade schedules to the discretion of marine terminal operators and the ports in which they are located, due to the structural and operational considerations unique to each terminal.

At issue is not imminent danger, but the known risk of oil spills in the event of an earthquake or tsunami, especially given the age of most terminals. More than half of the terminals statewide are 70-plus years old, and the Port of L.A. has some of the state’s oldest facilities. Six of the seven facilities at the Port of Los Angeles were built between 1919 and 1923. The port’s newest terminal, operated by Equilon Enterprises (formerly Shell), dates back to 1938.

At the neighboring Port of Long Beach, four of the five marine oil terminals were built in between 1965 and 1982. One dates back to 1929.

Some of L.A.’s oil terminals sit on wharves supported by wooden pilings – construction not used today when tankers are at least 10 times heavier than their predecessors that berthed, moored and unloaded in the 1920s. Some sections of the docks are in such disrepair that they are not in use.

Statewide, no terminal subject to MOTEMS has completed all its repairs. To date, all terminals found to have a high or medium risk for a potential spill – including all the facilities at the Port of L.A. – have completed their safety audits. But the lease uncertainty coupled with the age of the infrastructure is unique to the L.A. Port.

Complicating matters is the question of what’s the best configuration for liquid bulk petroleum operations at the port – a land-use issue that has gone unresolved for decades. A summary of the June meeting between State Lands and the port indicates port officials are looking at moving the Kinder Morgan and VOPAK facilities.

Going forward, a key factor is how much capacity the Port of Los Angeles should have available to meet future demand. The port has conducted a capacity/demand study expected to inform its pending MOTEMS compliance plan. Port officials say the results aren’t available because the report has not been finalized, but that there is plenty of capacity to meet existing demand. As a group, the seven terminals at the Port of L.A. represent about 12 percent of the state’s throughput.

There are five marine oil terminals at the Los Angeles Port with leases that are subject to renewal or already on a month-to-month basis. ExxonMobil’s lease (Berths 236-240) expires in 2015; NuStar Energy’s lease (Berths 163-164) expires in 2014; and Kinder Morgan’s lease (Berths 118-120) expires in 2013. Valero (Berth 164) has been operating on a month-to-month holdover lease since 2001, and ConocoPhillips (Berths 148-151) is operating under a similar monthly arrangement with a revocable permit.

The terminals with long-term leases are Equilon and VOPAK, whose agreements expire in 2023. State Lands Commission officials cite the Equilon facility as one of those statewide that has made major progress in MOTEMS compliance.

An unknown in the mix is the proposed Pacific L.A. Marine Terminal, a $445 million project still tied up in lease negotiations between the developer, Plains All American Pipeline, and the port. If constructed, the crude oil import terminal will be the first facility built to MOTEMS from the ground up.

Negotiations over the Pier 400 project have been slowed by changes in what the port is willing and able to pay for, items such as a new wharf. Originally, the port had planned to pay for the new dock, estimated at $80 million. It now appears Plains will foot that bill, which sets the stage for tougher negotiations between the port and existing marine oil terminal operators over who will pay for infrastructure improvements and maintenance at those facilities, including the cost of complying with MOTEMS.

For the existing marine oil terminal operators and the port, the issue becomes who is responsible for maintaining the infrastructure, the landlord or the tenant? The port may be hard pressed to invest in oil terminals that collectively generate only about 4.4 percent of the port’s $373 million annual operating revenue. In tough economic times, the investment is an even harder sell. For the current fiscal year, less than 2 percent of the port’s capital improvement spending is going to MOTEMS-related work, which is being used for planning and design for now.

The State Lands Commission’s estimated price tag of $11 million to $12 million per terminal to meet MOTEMS is based on compliance work done at the former Shell facility. Despite the unresolved issues, several operators say they have begun some of the repairs.

How much revenue the marine oil terminals generate for the port and consumer demand for petroleum products are separate considerations. Petroleum-based fuels account for 96 percent of the state’s transportation needs, according to the California Energy Commission. And despite the movement toward alternative fuels and renewable energy, the demand for petroleum products is expected to rise due to population growth, lack of mass transit, and the number of large vehicles on the road, according to the CEC.

Similarly, fossil-based fuels are expected to provide most of the energy consumed in the U.S., falling only to 78 percent of overall energy use in 2035 from 84 percent in 2008, according to U.S. Energy Information Administration’s latest forecast.

Meanwhile, MOTEMS brings to the fore a problem that has been lurking for years – the aging infrastructure of the state’s marine oil terminals. For that reason, the State Lands Commission isn’t taking a stand on who should pay for what, only that the work gets done.

The agency wants to see the improvements at the Port of Los Angeles completed by 2014-15, Gregory said. And while the agency itself can’t shut down a noncompliant terminal, it can take action that leads to the same result, he said. “Failure to comply with MOTEMS is not acceptable.”