Disputed rail project seeking to ship eastern Utah oil to more lucrative markets clears hurdle with $21 million funding boost

(Brian Maffly | The Salt Lake Tribune) The Green River Terminal in Wellington this year began trans-loading oil from trucks to rail cars, opening a new path for Uinta Basin crude to reach out-of-state markets.

Vernal • A controversial rail proposal, which would connect the Uinta Basin’s waxy crude with Gulf Coast refiners, cleared a crucial milestone Thursday by securing a $21.4 million grant from a Utah panel that doles out money from a fund fed by federal mineral royalties.

The Seven County Infrastructure Coalition sought the grant to conduct planning and environmental reviews needed to get the wheels rolling on the Uinta Basin Railway, an 80-mile line from near Roosevelt to the Union Pacific tracks at the head of Price Canyon.

(Christopher Cherrington | The Salt Lake Tribune)

After three hours of discussion, the state’s Community Impact Board (CIB) agreed to fund the huge request that bears little resemblance to its typical grants and loans that support projects that address the impacts of mineral extraction and enhance community services.

The $1.4 billion rail line could increase industrial impacts by enabling Uinta Basin oil production to nearly quadruple to 300,000 barrels a day. Backers say the rail route would help Uintah and Duchesne counties develop their energy-dependent economies and take pressure off highways used by tanker trucks.

Project opponents — wearing badges that read “We’re being RAILROADED!” — stood for most of the three-hour meeting.

“The CIB is failing the public trust in the administration of this money,” complained Sarah Stock, program director with Moab-based Living Rivers who opposes energy development in Utah’s sensitive landscapes. “This money should go back to communities to alleviate the impacts of oil and gas. This is our only avenue to access the benefits of oil and gas extraction on this land."

The CIB’s move elated Mike McKee, a former Uintah County commissioner and ex-CIB member who now heads the seven-county group.

“As we put in rail, we will stabilize the economy,” said McKee, who contends rail is an appropriate use of CIB dollars. “Other types of industry will be able to move into the basin as a result of the rail.”

His coalition of extraction-oriented eastern Utah counties formed a few years ago to develop projects to get their mineral resources to markets. Solving the Uinta Basin’s transportation bottleneck is one of its principal goals.

The meeting room at Vernal’s Uintah Conference Center was packed, mostly with project supporters, who applauded when the CIB approved the request over a single nay vote (which came from Gregg Galecki, a coal mine official who serves on the Utah Water Quality Board).

The decision to fund the grant was a make-or-break moment for the project, which has few funding options at this early juncture, according to McKee, who hopes to secure federal grants to construct the rail line.

The latest grant brings the total CIB investment in the project to $28 million, which cannot be spent on construction or acquisition of rights of way.

Some CIB members were bothered the seven counties were not bringing any money to the table. CIB grants ordinarily require a 50 percent match.

The coalition has contracted with the investment bank Drexel Hamilton, which will commit between $5 million and $15 million of its own funds, to raise private capital, commercialize the project and secure a partner to operate the rail line.

“We are traveling all over the country — Houston, Denver, Calgary, the typical energy centers — talking to them about the merits of the project and how we can be helpful to their commercial needs,” Mark Michel, the firm’s managing partner, told the CIB. “We are in discussion with every producer in the basin and also frack-sand producers looking to ship into the basin.”

Nearly all of the basin’s 80,000 barrels of current daily production is trucked to five refineries near Salt Lake City. The refineries enjoy a steep discount because basin oil producers have nowhere else to take their crude. Part of the problem is the basin’s isolation from a national rail network, but the bigger issue is this oil’s high paraffin content, which turns solid at around 100 degrees. Accordingly, it cannot be shipped through pipes unless those lines are heated.

“What’s the best way to get the oil out? Is it best to put it on the highways with safety issues when more trucks get on there? A study showed one tanker had the same impact as 6,000 to 10,000 cars,” McKee said. “The more we can pull trucks off the road, the better off we are going to be.”

An earlier state study found that without rail or some other transportation project, such as new pipelines or freeways, $30 billion worth of oil could remain undeveloped in the basin during the next three decades because of delivery constraints.

Michel said the project would pay for itself it it moves 150,000 to 200,000 barrels, enough to load three, 100-car “unit trains.” While Uinta crude’s paraffin content make it hard to transport, it provides a chemical makeup that is suited for refineries based in Louisiana and Texas.

“This railway is going to open up this basin, which is really the last stranded basin that has not had reliable access to the United States’ chief refining market on the Gulf Coast,” which can process 7 million barrels a day, Michel said. “Our customers on the Gulf Coast side …. have been blowing our phones up trying to access crude from here. ... The markets down there will eat this up because it’s a unique commodity."

The Ute Tribe, which generates much of its revenue off minerals it controls in the basin, supports the project, along with the basin’s largest producer, Newfield Exploration Co.

“It has long been our concern that marketing constraints are restricting development of tribal trust resources, and finding additional markets is essential to realizing greater opportunity for the Ute Tribe and its membership,” Luke Duncan, chairman of the Ute Indian Tribe Business Committee, wrote in a letter to McKee. “The Ute Indian Tribe is hopeful that a project of this scope and scale can gather the necessary funding, support and partnership required to make a Uinta Basin rail line a reality.”

The coalition’s preferred alignment passes through Indian Canyon, but it is also studying options through Argyle Canyon and to the east to Colorado. The east-running option would be more than twice as long, mostly in Colorado, but passes through less-challenging terrain.

The federal Surface Transportation Board will conduct the environmental review and decide which route if any it would take. McKee hopes for a decision by the end of next year with construction completed in 2023.