OREANDA-NEWS. New conditions would bar the largest proposed US railed crude terminal from exporting oil under a lease amendment approved by port commissioners late last week.

The Port of Vancouver, Washington's governing board offered to extend a more flexible permitting period for the long-delayed 360,000 b/d Vancouver Energy project, but included conditions likely to rankle free-trade advocate and joint venture partner Tesoro.

Commissioners approved conditions that include increasing the monthly fee paid by Vancouver Energy to $100,000, eliminating an option for a second railed crude facility at the port, requiring crude moved through the facility to be "pipeline grade" and limiting the oil's destinations to domestic ports. The project would have 30 months to resolve appeals related to its state or other permits.

The port would also extend by seven months, to 31 March, 2017, a permitting phase that allows either the port or Vancouver Energy to terminate a 10-year lease with a simple written notice. That period would be up for renewal every three months afterward.

Vancouver Energy praised the commission's unanimous approval of the proposed amendment and said today it continued to review the language.

Permitting for Vancouver Energy's project has continued far longer than either the port or the midstream joint venture expected. Washington statute requires the state's Energy Facility Site Evaluation Council to make project recommendations within a year of an application. Vancouver Energy applied in August 2013.

"In my mind we have a lot of unanswered questions, and to pull the plug now just isn't fair to the applicant," Commissioner Brian Wolfe said in discussion before he offered the alternative amendment commissioners approved.

The joint venture earlier this month sought to extend the Conditions Precedent Outside Date by two years to 1 August, 2018. The company offered to pay $100,000 a month and drop interest in a second railed crude facility at the port, but did not propose crude limitations.

Staff recommended rejecting the amendment. Vancouver Energy would have less flexibility to exit the lease following a rejection in the ongoing state-level process, which is not scheduled to be completed before 1 August and will almost certainly involve further litigation.

Leaving the lease untouched would create risk for the port as well. Vancouver Energy does not pay full rent during the current phase, and it was not immediately clear when, if ever, the port would collect full rent if the project was never built. Commissioners said they had an obligation to host projects that produce jobs and other benefits for the community.

"I can't justify that," Commissioner Eric LaBrant said during debate before the vote. "I can't justify an additional four years of going nowhere for us at the port."

The project remains a centerpiece of Tesoro's strategy to expand crude supplies for a region largely bereft of pipeline connections to North American production. The US independent refiner was one of the first to tap Bakken production on the west coast through a rail facility at its 120,000 b/d refinery in Anacortes, Washington.

Access to US shale and Canadian production would for west coast refiners loosen the hold claimed by waterborne crudes, including Alaskan North Slope, a regional staple that faces declining production.

But regulator resistance and fading arbitrage have limited deliveries of crude to the west coast to just half of the railed crude movements to the US Atlantic coast, according to Energy Information Administration data. A string of projects on the coast have been rejected or withdrawn, most recently at Port of Grays Harbor in Washington, where the USD Group terminated its lease option for a 50,000 b/d railed crude facility.

"Certainly the Pacific Northwest is getting a reputation as a place where certain kinds of projects go to die," LaBrant said.