Diversifying for Port of Tacoma’s Future

By John Gillie, January 3, 2013, The News Tribune

Among the lessons that the recent recession taught the Port of Tacoma was that relying too heavily on a single line of business, no matter how potentially profitable, was an invitation to financial hardship.

The port’s nearly single-minded devotion to turning the Tideflats into a vast container terminal from one end to the other put a strain on the port’s finances, led to layoffs and nearly left the port with a billion dollar terminal it couldn’t complete when container traffic fell 25 percent and its newest customer backed out of the terminal deal.

Now a new strategic plan, in force for a little less than a year, puts a new emphasis on diversifying the port’s mix of cargoes and improving the productivity of existing facilities instead of creating new ones.

The wisdom of that strategy has been demonstrated with the move last summer of the Grand Alliance container shipping consortium from the Port of Seattle to the port’s underused Washington United Terminal. And the port’s efforts to diversify its cargo mix received a significant boost with the approval of new contract last month with a major new non-container customer, Targa Sound Terminal.

Targa will spend up to $150 million of its own money to build a new petroleum products tank farm on one of the port’s prime development sites, the old Kaiser Aluminum Co. smelter plant. That new facility will create 50 new permanent jobs at Targa and countless other jobs for railroad and longshore workers. Those workers will handle the unit trains bringing the cargo from the Great Plains and the ships and barges that will move crude and petroleum to Washington refineries and distribution facilities.

NEW STRATEGY

While Targa’s investment and its employment increase won’t match those generated by the Grand Alliance’s container operations, it will be a major step in further balancing the port’s business toward noncontainer operations. The Targa commitment is just the latest in a series of steps the port has taken to attract and retain other businesses on the Tideflats.

The port has revived the log export business, which had disappeared from port’s waterways a dozen years ago. It has signed up two shipyards, one a yacht builder and the other a small warship builder, to occupy World War II shipyard buildings once slated for demolition.

It has inked an extended contract with Temco for the Port’s Schuster Parkway grain terminal that ensures that facility will continue in operation for decades to come. It increased the port’s breakbulk volume by 68 percent in 2012. Breakbulk cargoes are items such as earth-moving machinery and tractors too bulky to be containerized.

And the port has agreed to rehabilitate and repair several decades-old buildings to house smaller contractors and businesses.

The port, under chief executive John Wolfe, has found new focus in pursuing a wide variety of water-related businesses.

LANDING TARGA

At Targa Sound Terminal, President Troy Goodman and his boss, Joe Bob Perkins, CEO of Targa Resources, credit the port and Tacoma Rail with making extraordinary efforts to accommodate the company’s needs.

Houston-based Targa Resources bought the former Sound Refining facilities on the Hylebos Waterway in October of 2011. Sound was distributor of petroleum products from a tank farm on the east side of that waterway. A pipeline under the waterway connected that terminal with a rail yard on the east side of the waterway where tank cars of petroleum products were unloaded.

Targa saw the region’s petroleum needs increasing and new sources of supply developing in the Bakken formation in North Dakota. That region now produces more crude oil than Alaska and Oklahoma combined.

Targa expanded its existing facilities and then last spring began looking for further room to grow. Targa Sound is a rapidly growing company. In 2004, the company had 18 employees. Now it has 46 on its work roster. That number is expected to more than double by May 2014.

“We’ve grown this facility as much as we could. We need to expand further to continue to grow our business,” said Goodman.

The site they wanted would have good access both to rail and to the water, said Perkins. Much of the booming production in the Bakken region was moving by long unit trains of tank cars typically more than 100 cars long, because the region had few pipeline connections with the nation’s refineries concentrated on Gulf, East and West coasts.

In the meantime, Washington’s refineries, built largely to process Alaskan crude, were coming up short because of diminishing production in the 49th state.

“The six Washington State refineries and the West Coast refineries in general are bringing in imported crude now, Russian crude, Canadian crude, spot cargoes from elsewhere,” said Perkins.

“For the state and for those refineries, Canadian crude and Bakken crude make a lot more sense. It appears to be competitive. There’s a growing consensus that rail from the middle of the country to the West Coast by rail with fine grade crude is very economic. True, you can build pipelines across the Rocky Mountains to the West Coast, and rail couldn’t compete with that, but I don’t see anything on the drawing board. Most people project the railroads will serve refineries on the West and East coasts for a long time to come,” said the Targa Resources CEO.

Targa also sources much of its supply of biofuels from the Midwest where ethanol plants proliferate. Those products could also be brought to a new facility by train.

Targa went to the port last spring to explore the possibilities for a new facility and then began serious negotiations late last summer.

The facility would need sufficient space for tanks to store 1.5 million barrels of petroleum products, space for a rail yard large enough to handle two, 100-car unit trains a day and a nearby dock where the petroleum products could be loaded and unloaded.

“It’s consistent with our philosophy of having multimodal terminals. Rail and water works so well together when you’ve got a good port and a good rail. Sometimes we don’t have both of those. In Tacoma, we have both of those,” said Perkins.

The port’s 96-acre Kaiser site fit the bill.

The port bought the World War II smelter with its 500-foot-tall smokestack in 2003. That smelter was one of a half-a-dozen aluminum plants built before or during World War II to take advantage of cheap electric power produced by Columbia River dams and the demand for aluminum in the aircraft industry in the Puget Sound area.

Kaiser, which bought the smelter from the federal government in 1947 for $3 million, operated the facility until 2000. The company blamed low prices for aluminum, rising energy prices and a two-year strike for forcing it to close the plant. But Kaiser reportedly resold the still relatively low-cost power it had contracted for the plant on the open market for $460 million.

The port demolished 75 buildings on the site and recycled more than 1.5 million pounds of metals salvaged from those buildings to offset the restoration costs.

WHAT’S NEXT

Targa will initially spend about $80 million for the first phase of the project and then expand it as the need demands, said Goodman.

The logistics company will continue to operate its facilities on the Hylebos Waterway. It will connect the Kaiser site tank farm with the Hylebos site by pipeline. That pipeline will be built in the Taylor Way right of way.

The Kaiser site facility will be connected to the East Blair wharf with another pipeline. Goodman said he expects about 15 ships and barges will call at that dock monthly when the facility is working at capacity The ships will typically be 600-to-700-foot-long tankers equipped with double hulls. The East Blair Wharf is another port facility that’s been unused since it was completed in 2009, said the port.

The tankers and barges will be surrounded by a boom when they’re loading and unloading to prevent any spilled oil from spreading, said Goodman.

Targa is a member of a consortium of oil handlers that maintains oil containment and cleanup facilities and boats on Puget Sound to respond to a spill.

“The vessels we use all go through Coast Guard inspections. They must meet financial responsibility requirements. The Washington Department of Ecology also inspects vessels. Washington has the lowest incident of spills to the marine environment anywhere in the nation,” said Goodman.

The terminal itself will have extensive pollution prevention protection. All of the unloading tracks will be under roofs both for worker safety and environmental protection. The whole facility will be surrounded by a berm designed to contain any spills.

“We’ll have a stormwater facility that will collect water from the entire site,” said Goodman. “That’s something that the site doesn’t currently have. And we’ll be able to collect it, process it and test it and discharge it through some existing outfalls. We’ll have the ability to test that water before it ever goes off-site,” he said.

“We will have the ability to gauge the tanks and if we have a leak we’ll be able to see it early on,” said the Targa president.

Besides the 50 workers that Targa will employ to operate the new tank farm, the new business is expected to generate longshore jobs at the wharf and railroad jobs for Tacoma Rail, the municipally owned short line railroad that provides switching services for the Tideflats.

Dale King, Tacoma Rail superintendent, said he expects the railroad will be able to handle the 7,000-foot-long trains comfortably. The Port of Tacoma has already begun planning to construct two long lead tracks to serve the new facility.

The trains, because they’re all bound for the same destination, won’t require switching or rehandling between Targa’s yard and the BNSF Railroad, which will transport them from North Dakota to Tacoma and back.

Tacoma Rail is already handling unit oil trains for the U.S. Oil refinery on the Tideflats. U.S. Oil is building new tanks and tracks to handle that new feedstock from the Great Plains.

King said the new trains will increase hiring at the railroad, which has already hired 17 workers to handle additional train traffic generated by the Grand Alliance.

And the additional traffic will improve the railroad’s financial health, which had suffered when container traffic declined during the recession.

For the port, the new facility will not only diversify its mix of business but also generate an estimated $8.6 million in revenue a year, an amount that should help the port move toward the financial goals outlined in its strategic plan.

The facility’s first phase is expected to be up and running by May of next year, Goodman said.

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