State works to avoid shutdown at refinery

Company struggling because of last year's record high prices

Posted: Tuesday, January 06, 2009

ANCHORAGE - State officials are hoping to avoid a shutdown of the Flint Hills Resources refinery in North Pole.

If the refinery was to shut down, it could impact the Anchorage economy, as well as the Ted Stevens Anchorage International Airport and the Alaska Railroad.

Flint Hills is owned by Kansas-based Koch Industries Inc. The company says the refinery near Fairbanks is struggling to make money because of last year's record high prices for crude oil.

The refinery started up in 1977, the same year the nearby trans-Alaska oil pipeline began carrying Prudhoe Bay crude oil. It uses a spur line to tap the pipeline for crude that's cooked into finished products, such as jet fuel, heating fuel and gasoline.

Flint Hills buys the oil at market rates, plus a premium of more than $1 a barrel, from the state, which receives a royalty share of North Slope production.

Koch spokeswoman Katie Stavinoha said one option is converting the receiving station to distribute but not make fuels. Last year, the company also mentioned possibly upgrading the refinery, but such an investment has now been deemed "not economically justified," she said.

In the meantime, the company is looking for a buyer.

Nearly every day, a train hauling mostly jet fuel makes the run from North Pole to Anchorage. These fuel shipments are vital business for the railroad, generating $41 million, or 36 percent of its combined freight and passenger revenue in 2007.

The Anchorage airport also is one of the world's busiest pit stops for cargo jets. Aircraft last year used 864 million gallons of jet fuel. The Flint Hills refinery makes roughly 60 percent of the jet fuel pumped at the airport, state officials say.

If the refinery were to cease production, the Alaska Railroad couldn't run as many trains, would have to cut its payroll dramatically, and would need to raise rates for moving passengers and other freight such as coal and gravel, said railroad board chairman John Binkley.

State officials say at the airport, fuel sellers likely would have to ship in more fuel from Outside suppliers, which could push up prices and make Anchorage less attractive as a stop for international air cargo carriers.

Gov. Sarah Palin announced in December that the state had launched a "cooperative effort" to help Flint Hills. A news release from her office suggested the refinery could end up as part of the Alaska Railroad, a state-owned corporation.

Binkley said later in the month that the railroad does not want to be in the refinery business.

One way the state could help Flint Hills would be to lower the sales price of its royalty oil. But Kevin Banks, the state's oil and gas director, said the courts have held the state can't give select companies a "sweetheart deal" on state resources.

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