The opinion piece by Shannyn Moore in the Sunday, July 15 edition of the Daily News was inaccurate, unfair and misleading. As our employees and the Fairbanks community know, the Flint Hills Resources refinery in North Pole has not been thriving on profits. We are in the process of idling the second of our three crude units because of three economic challenges that threaten the future of our refinery. Those challenges are the exceptionally high costs of crude, energy and the "quality bank."
Flint Hills has only one source of crude to refine: royalty oil owned by the state of Alaska and flowing down from the North Slope in the trans-Alaska pipeline. Other North Slope producers need their oil for refining operations on the West Coast. For the past year, Alaska North Slope crude, or ANS, has been trading at a significantly higher price than other U.S. crudes, in particular West Texas Intermediate, or WTI. The premium for ANS over WTI has ranged from about $15 a barrel to a high of nearly $30 a barrel in October 2011. This is 36 cents to 71 cents a gallon more for ANS than WTI.
In addition, the state of Alaska charges Flint Hills a premium for the crude. In 2011, the premium amounted to $11.6 million above the amount the state received for the rest of its royalty oil.
Flint Hills does not have access to natural gas to provide heat and energy for refining. After the cost of crude, energy is our second-biggest expense. Flint Hills must refine ANS crude into a product similar to gasoline just to provide energy for the refinery. As a result, our energy costs are about three times higher than for refineries with access to natural gas.
In addition, the electrical rates at the refinery are three or more times higher than those paid by most U.S. refineries.
A final factor that drives up the refinery's energy costs is the temperature of crude coming into the refinery. In the early 1990s, crude arrived at the refinery at a temperature around 110 degrees F. This past year, incoming crude has at times come in at less than 40 degrees F. Lower temperatures are a result of lower oil volumes in the pipeline. The effect is that Flint Hills has to use considerably more energy to heat the crude to the 600-plus degrees required by the refining process.
A final cost borne by Flint Hills but not other U.S. refineries is the "quality bank." Because Flint Hills does not refine the entire barrel of crude that comes through the refinery, it must re-inject a portion of the refined crude back into the pipeline. Flint Hills pays for the ability to do that, an expense that our competitors do not bear.
Flint Hills is working diligently to address these economic challenges. For example, we are working on a natural gas trucking project to bring less expensive energy to the refinery. And we recently completed a project to recover more heat from the processed crude.
Our company and its employees do not ask for subsidies or special treatment, but we do ask that the facts not be misrepresented as we work to secure a future for our refinery in Alaska.
Jeff Cook is the regional director of external affairs for Flint Hills Resources Alaska, North Pole refinery.
