Proposed Policies to Reduce Oregon Fuel Supply Capacity by 20%

Portland City Council is expected to vote on legislation this fall that could result in a 20% storage capacity reduction at a vital bulk fuel supply hub in Portland, Ore., by 2036, with potential ramifications to be felt throughout the state.

The Critical Energy Infrastructure hub is a six-mile stretch of land in northwest Portland located along the Willamette River. It contains 11 terminals operated by Chevron, Kinder Morgan, BP, Phillips 66 and others that store and distribute more than 90% of Oregon’s liquid fuel supply.

Proposed policies, submitted to Portland City Council in March prohibit new fuel terminals, reduce in-service fuel tank capacity for renewable and fossil fuels and direct a potential limitation on storing non-petroleum hazardous substances in the hub. Additionally, the policies prohibit new and expanded transloading facilities – like pipes, pumps and loading racks – unless a project is associated with an existing replacement storage tank, accommodating safe tank capacity transfer approved from a fuel storage tank transfer review or built exclusively for aviation fuels after completing a discretionary land use review.

The Bureau of Planning and Sustainability, the leading agency on the policies, said in an email update May 20 that it will release draft regulations for public comment in June, and that it will “provide additional detail” for the 20% storage tank capacity reduction proposed in the project’s draft. There will be two additional online information sessions, the agency said.

Initial discussions on these regulations began in March 2025, after the agency recognized concerns about a Cascadia earthquake and growing wildfire risks in the hub. Tom Armstrong, supervising planner at BPS, said legal documents are being prepared by the agency for the package recommended for City Council, which could be seen in late July or early August this year.

“We’ve always been sensitive to try and balance the sort of two competing needs, reducing risk in the event of a disaster, and yet trying to do it in a way that maintains the fuel supply that is needed to support our economy,” Armstrong said. “But what we’ve seen is that other forces out there, namely fuel efficiency changes, have led to the overall demand for liquid fuels coming in and out of Portland not really increasing over the last 20 plus years.”

BPS completed energy demand forecasts that showed “at least a flat demand” for liquid fuels for “at least the next 10 years,” according to Armstrong, even after accounting for population and economic growth in the city.

“Beyond the next 10 years, we really see a big decline in the demand for liquid fuels,” he said. “Our first step is to limit expansions and then the second step is looking out beyond 2036 when we begin to see that decline so that we can begin to reduce the capacity in the hub.”

Eric Engstrom, director at BPS, said in an email that the proposal balances a “real need” to cut natural hazard risks in the hub with the oil industry’s impact on the economy and Portland’s 2050 net-zero carbon emission objective.

“Throughout this process, we have heard from hundreds of community members, organizations and industry leaders. This proposal is a direct response to those concerns and needs — further limiting capacity expansion at the CEI Hub and requiring a 20% reduction of fuel storage capacity by 2036,” Engstrom said.

If the proposed policies are approved, terminal operators in the hub will submit inventory documents to the city, which Armstrong said will be used as a benchmark for the 20% capacity reduction. He added that terminal operators do not have to reduce supply capacity until 2036, a deadline that aligns with Oregon Department of Environmental Quality seismic upgrade timelines, allowing operators to incorporate storage reductions into their infrastructure investments.

“Over the next 10 years, when all of these (operators) are making those investments, the city is essentially putting them on notice to say, ‘You know what, as you’re making all these seismic upgrades, factor in a 20% reduction in your capacity’ … so that they can factor in this reduction as part of those seismic upgrades,” Armstrong said.

The CEI hub contains roughly 370 million gallons of in-service tank capacity, with about 315 million gallons accounting for fuel, leaving a little more than 50 million gallons in non-fuel related capacity, according to city documents released in November. The capacity cap would reduce the CEI hub cluster’s storage by around 63 million gallons, limiting the total fuel capacity to 252 million gallons by 2036.

Megan Boutwell, president of fuel advisory at analyst firm Stillwater Associates, said Stillwater estimates a 12% to 15% drop in fuel demand compared to the 20% drop suggested by the city’s energy forecasts.

“Maybe we will have a reduction in demand for liquid fuels by 20% in 10 years. It is hard to say,” Boutwell said.

With the state’s Clean Fuels Program, Boutwell said the “marginal fuel” that terminal operators can procure to generate credits and transition their tanks towards clean energy is renewable diesel and sustainable aviation fuel, for which demand is expected to increase alongside ethanol, renewable propane and renewable NAPTHA products. With a “more stringent” reduction standard, she said the optionality for operators to make decisions on their tanks diminishes and could elevate costs.

“Any kind of kink in the terminal system adds cost to the end user,” she said. “If we’re reducing the flexibility of storage capacity, if some kind of exogenous event happens and you don’t have what you thought you would have (in supply), that’s tricky.”

With a diversified storage structure, jobbers could truck product from potential storage locations across the state, including commercial fueling stations designed for business fleets, truckstops and state maintenance yards and airports, said Yumei Wang, senior advisor on Infrastructure Resilience and Risk at Portland State University. She said there could be “cascading effects” for the hub’s terminal operators.

“If I were operating a fuel terminal here, this would cut into my profits and I would think about my business model. I don’t know if that actually would cut into their products,” Wang said.

Boutwell said adding more storage across the state is a viable option. She highlighted the potential for a terminal at the end of the Kinder Morgan Pipeline in Eugene, Ore. She also suggested new-build pipelines are a possibility.

New infrastructure would likely face regulatory and community opposition, she said.

Oil and gas representatives, including terminal operators in the hub, have said the policies lack a fundamental understanding of liquid fuels logistics and may add pressure on the fuel supply chain.

“This proposal should raise real concerns in Portland and the rest of Western Oregon,” the Western States Petroleum Association, which represents Chevron, Marathon and other West Coast refiners, said in a statement. “Tank space isn’t extra – it helps keep fuel available to consumers and businesses throughout our region and provides a buffer during supply disruptions. Reducing tank capacity would also limit the ability to blend renewables into our fuel supply, making it harder to support the energy transition.”

In public testimony submitted in January, WSPA said “arbitrary” limits on tank capacity can disrupt fuel flow, delaying inbound marine vessels or pipeline batches if terminal tanks lack the available capacity to receive a product.

The Oregon Fuels Association said in December that the city “does not need to do anything further” with the adoption of the state’s Fuel Tank Seismic Stability Program from operators. It highlighted the ability to import and store renewable fuels as a significant feature for the state’s programs.

NW Natural Gas Co., an operator of a 7.3 million gallon capacity terminal in the hub, said the energy modeling assumptions of the city do not include their Portland LNG functions as a peaking facility, which provides gas for residential and commercial winter weather needs in Portland. Restrictions on storage capacity would have “direct and immediate implications” for customers, affecting reliability and cost, the company said in public testimony.

“A policy of this scale warrants evaluation of how proposed restrictions affect not only fuel storage and jobs at the Hub itself, but the broader energy usage that supports our entire region’s economy,” the company said. “Without such an assessment, it is difficult to conclude that the current approach meaningfully advances safety outcomes on a broad scale with no economic trade-offs or regional job loss.”

With the state’s Fuel Tank Seismic Stability program codes perceived as “not 100% fool proof,” Armstrong said there is flexibility within the proposed policies that allow terminal operators to reconfigure and reallocate their tank storage with more feasible options for their market. He also emphasized the city agency has “responded to evidence” for fuel demand requirements that warrant modifications to the policies.

“We continue to recognize that jet fuel in particular, while still a small part of the overall fuel flowing through the CEI hub, less than 10% is my recollection, but we have included in these limits a pathway for a modest expansion to serve that need,” he said.

Amendments made to the policies in March carved out a 5% increase in aviation fuels capacity due to the expected growth in demand for the product at the Portland airport. Companies can apply for the 5% expansion in aviation fuel by undergoing a discretionary land-use review.

In terms of potential emergency supply situations in the state, Armstrong said city and state governments have emergency declaration powers that can be specific to address those instances.

“That’s how public policy works,” he said, “we adopt regulations, industry reacts and then we adjust the regulations.”

–Reporting by Shaheer Naveed, snaveed@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com