Energy costs, jet fuel drop combine to close refinery

Decision by North Pole company will shut one unit, cost 35-40 jobs.

Associated PressApril 15, 2012 

FAIRBANKS -- Decreased jet fuel sales in Anchorage were a secondary factor into the decision to shut down a crude oil refining unit at the North Pole Refinery, which will cost 35 to 40 jobs, according to a spokesman for refinery owner Flint Hills Resources.

Jeff Cook told the Fairbanks Daily News Miner that competitors are able to sell jet fuel cheaper to Ted Stevens Anchorage International Airport because it costs them less to produce it.

"We cannot economically compete with refiners who can bring jet fuel into Anchorage refined at other locations with a) cheaper crude, and b) cheaper energy," Cook said.

Besides the job loss, the decision will affect the Alaska Railroad, a spokeswoman said.

Flint Hills sent 36,000 tank cars filled with 800 million gallons of product to Anchorage in its peak year of 2003, according to the state-owned railroad. Jet fuel accounted for 69 percent of the product.

Shipments over the last decade have decreased and head south now at a rate of 17,000 tank cars a year, with 78 percent carrying jet fuel.

The railroad anticipates an additional decrease because of the refining unit shutdown.

"We're expecting it to be about 320 million gallons for 2012," said spokeswoman Wendy Lindskoog. "This will have a big effect on our revenue."

Flint Hills announced the production unit shutdown earlier this month. One refining unit will continue to operate.

Flint Hills bought the refinery in April 2004 and had previously shut down another of its three crude oil processing units.

Jet fuel sales were not the primary reason for the shutdown of a second refining unit, Cook said.

"Indirectly, I guess you could say yes, we can't compete with imports into Anchorage, that increased imports have hurt us, but the real driver is the high cost of energy.

"The reason we're closing Crude Unit One is to reduce our energy costs and be more efficient. And to adjust to demand," Cook said.

The company earlier said the North Pole refinery faced a competitive disadvantage. Refining consumes large amounts of energy and that cost figures into the price the refined product.

Refineries that run on natural gas pay around $2 per million British thermal units. Flint Hills pays $20 to $21 per million Btu because it does not have an inexpensive and ready supply of natural gas and must instead burn oil, Cook said.

"It's the result of the differential between natural gas prices and crude prices, particularly NS (North Slope) crude, which is trading at a premium," Cook said.

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