Flint Hills spokesman Jeff Cook, speaking by phone, told the Senate Energy Committee in Juneau the move is unprecedented but that company officials hope it will last only a month or so. He said he did not anticipate lost jobs or work hours for the approximately 175 refinery employees.
The Alaska Railroad is feeling the effect of fewer fuel shipments between North Pole and Anchorage, said board Chairman John Binkley. About 40 percent of railroad revenue comes from hauling the fuel.
In response to a decline in Flint Hills investments in the refinery in 2007, railroad CEO Pat Gamble launched a plan to streamline train operations. The railroad has eliminated 80 positions through hiring freezes and attrition.
Binkley said he expects some consolidation of train service and possible tariff increases. Losing fuel shipments can affect other freight and customers, he said.
"At some point, you can only eliminate so many people and cut your costs, and then you have to start looking at consolidating trains, which means less frequency between Anchorage and Fairbanks, and also look at adjusting your tariffs or rates," Binkley said.
Cook testified against a bill addressing gasoline price gouging. The bill would install financial penalties for refiners found guilty of charging "excessive or exorbitant" prices.
"It would be a gamble for us to even operate," Cook said. "Our refinery is losing money again, and the outlook is uncertain for the months ahead."
Cook earlier this year testified about financial difficulties faced by the refinery. The problems peaked with oil prices last summer, the company said, in part because it buys state royalty oil at premium prices.
In May, Flint Hills President Brad Razook said the company was evaluating whether to shut down, sell or significantly alter the refinery.
Gov. Sarah Palin in December announced a cooperative effort "positioning the North Pole Refinery for long-term success." Palin cited the refinery's positive economic impact as an employer in Fairbanks and Anchorage and as an anchor for airports and railroads. Options reviewed include a possible transfer of ownership to a state corporation and breaks on royalty prices paid on state oil.
Cook said previously that Flint Hills would like to set up a risk-sharing agreement with the state that offers better margins when revenues are low, but gives the state more when revenues are up.
The refinery mainly manufactures jet fuel for sale at Fairbanks and Anchorage airports.
However, flights are down more than 30 percent at Ted Stevens Anchorage International Airport, Cook said.
Global market conditions have forced down demand for air cargo transportation at the busy hub, decreasing fuel needs, Binkley said.
Fairbanks International Airport spokeswoman Angie Spear said demand is fairly stable in the Interior.
A year ago, Flint Hills shipped jet fuel to Anchorage in about 80 cars per day on the Alaska Railroad, Cook said. Now, the refinery is down to about 40 cars per day of production.
Gamble is scheduled to attend a meeting of Flint Hills Resources officials in Kansas this month. Alaska Department of Natural Resources Director Tom Irwin also is expected to attend to discuss a partnership.
State officials have been reviewing private documents provided by Flint Hills under a confidentiality agreement. The documents are intended to offer an accurate assessment of the financial conditions at the refinery.
"We're looking forward to more specific conversations with them next month," said Joe Balash, a Palin assistant.
Gamble said all options remain on the table.
"We're looking at the process of how to keep a viable refinery operation going in the Interior," he said. "Is there a way that we can resolve the issues favorably on the part of the state?"
He said the Legislature would likely want to approve any plan. However, a plan is not likely before the end of the legislative session in April, he said.
The North Pole refinery has three units that process crude oil pulled from the trans-Alaska pipeline. One unit produces diesel and jet fuels and another produces gasoline, asphalt and some diesel and jet fuels. The third one, which was shut down, was built to handle an increase in jet fuel demand at the Anchorage airport.
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