Nome isn't only city lacking fuel security

ECONOMYJanuary 14, 2012 

The drama that played out in Norton Sound this week, with the icebreaker Healy smashing a path through heavy ice so a Russian tanker could deliver fuel to Nome, was an inspiring feat of seamanship by the crews of both vessels and innovation by the marine fuel company that organized the venture, Vitus Marine.

It also reminds us how tenuous our Alaska fuel supply network is. And that's a problem not just for rural Alaska. There are worrying trends that should concern urban Alaskans, including those in Anchorage.

But let's look at rural Alaska first. It was a fierce, hurricane-strength winter storm in the Bering Sea that blocked Nome's final fuel delivery by barge, creating the need for the unprecedented midwinter delivery.

Weather events will happen, of course, and there may be more of them with climate change under way. Some fuel supply contingency planning by communities in Western Alaska is in order, along with some attention to making the existing delivery system more efficient for companies that deliver fuel, like Crowley Maritime, Delta Western and Vitus Marine.

I'm amazed the system works as well as it does. Let's give credit to those plucky tug skippers who maneuver their barges through adverse weather, tides and low water. Consider the Kotzebue region: Because the offshore area is so shallow, companies bring fuel in large barges as close to shore as possible, then transfer it to smaller, shallow-draft "lightering" barges to get it to shore. For delivery to small communities upriver, fuel must be reloaded again into smaller river barges. Loading and unloading three times is one reason gasoline costs $7 and $8 a gallon in many villages.

Can we do something about that? Probably not, unless people want to go back to wood heat in a big way. But we can make the system more efficient with selective and strategic improvements in infrastructure, such as docks. This doesn't have to cost a lot. The Denali Commission has a list of needed projects, all small. Some state money is needed as well.

Gov. Sean Parnell has recognized the importance of basic facility improvements in rural coastal communities to provide better access to offshore fisheries. Selective improvements in fuel infrastructure should be added to the list. Now let's turn to urban Alaska.

Until we found Cook Inlet oil in the 1960s, Southcentral and Interior Alaska were at the far end of a fuel supply line from the U.S. West Coast. The discovery of oil in Cook Inlet allowed Tesoro to build a refinery near Kenai. North Slope oil discoveries brought construction of a refinery near Fairbanks, now owned by Flint Hills Resources.

Two other small refineries were built by Petro Star, an Alaska company, near Fairbanks and Valdez.

Tesoro supplies much of the gasoline used in the state. It also supplies, by barge, a good percentage of the fuel used in Western Alaska. Flint Hills was previously the major supplier of jet fuel to Ted Stevens Anchorage International Airport, but the airlines now buy most of their jet fuel from overseas. Flint Hills also supplies fuel to Interior villages along the Yukon River. The fuel is trucked to Nenana and barged downriver.

These refineries have served us well over the years. We should take comfort that, unlike in earlier days, we are self-sufficient in fuel.

But we can't take these refineries for granted.

Tesoro's refinery was built in the late 1960s when Cook Inlet oil production was hitting its peak. Now production in the Inlet is a dribble of what it once was. Tesoro must now import crude oil from overseas. Because of the declining North Slope production, Tesoro can't buy much of that oil, ironically.

Another problem is that Tesoro can't sell products from all parts of the crude oil barrel. Part of the crude is refined into gasoline, diesel and jet fuel, but unlike refineries in the Lower 48, Tesoro can't sell products from the lower quality parts of the barrel, except at a loss.

Unless we get lucky and find a lot more oil in Cook Inlet, the refinery's problems will get worse. Having Tesoro more and more dependent on foreign crude, while selling about a third of the oil it refines at a loss, is not a situation that should make us comfortable.

The Flint Hills refinery near Fairbanks faces different problems. The company purchases state-owned royalty oil and is thus assured a supply of crude, but the temperature of the oil is falling as the flow of oil through the trans-Alaska pipeline drops. As the oil cools, Flint Hills must heat it before it can refine it, and the only fuel available is oil. At $100-plus a barrel for crude oil, this adds hugely to costs. Having natural gas in Fairbanks would ease this problem.

Flint Hills supplies gasoline, diesel, heating oil and jet fuel to Interior Alaska. If something happened to that refinery, all the Interior's fuel would have to be shipped in.

There are also the small PetroStar refineries, but we don't know much about them. Arctic Slope Regional Corp., which owns PetroStar, is guarded in providing information. I suspect it has problems that are similar to those of Tesoro and Flint Hills.

There is a solution: New oil discoveries. Flint Hills needs new oil moving down from the North Slope. Tesoro needs more oil from Cook Inlet.

We typically think of our declining oil production in terms of reduced state revenues, but there is another side to it -- fuel security.


Tim Bradner writes for an Alaska economic reporting service. He also consults for private clients and writes for business publications. His opinion column appears every month in the Daily News.

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