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In a blow to Fairbanks, Flint Hills says it will close down North Pole refinery

The Flint Hills Refinery in North Pole, Alaska. Flint Hills Resources announced that it would cease gasoline, jet fuel and heating oil production at the refinery no later than June 1. RadioKAOS / cc via Flickr

FAIRBANKS -- The Flint Hills Resources refinery in North Pole, a mainstay of the economy here since the pipeline began operation in 1977, will shut down in the spring and become an oil shipping and storage terminal.

This announcement comes weeks after Flint Hills asked the Alaska Department of Environmental Conservation to allow chemical concentrations of sulfolane in groundwater that are 25 times higher than those proposed by the state as acceptable. The company has asked for a hearing on whether it will be allowed to set a target of 362 parts per billion for the pollutant, instead of the 14 parts per billion target.

At various times in recent years, the company has blamed rising operating costs, the high cost of Alaska North Slope crude oil, a profit squeeze and long-term liability associated with the sulfolane spill as factors that threatened the viability of the refinery.

"With the already extremely difficult refining market conditions, the added burden of excessive costs and uncertainties over future cleanup responsibilities make continued refining operations impossible,” Flint Hills Vice President Mike Brose said in a prepared statement.

"This has been a difficult decision made after a long, thorough and deliberative process," Brose was quoted as saying. "Our company has spent an enormous amount of money and resources addressing soil and groundwater contamination that was caused when Williams owned the refinery and the state of Alaska owned the land underneath it.”

The impending shutdown means that about 80 people will lose their jobs, while 35 employees would remain to run the oil shipping terminal in North Pole and 10 would work at the Flint Hills terminal in Anchorage. Instead of processing and shipping North Slope crude oil, the company would get its oil from another source, Flint Hills said.

Refined products will probably be purchased elsewhere and barged to Alaska. The tanks at North Pole can hold about 30 million gallons of fuel.

'Suffocating' refiners

What this means for the price of heating oil and gasoline is not clear, though the Petro Star refinery in Fairbanks continues to produce heating oil and most of the gasoline in Fairbanks is produced on the Kenai Peninsula.

Doug Chapados, president of Petro Star, said in a press release that the high operating costs in Alaska and “excessive fees that refiners must pay to re-inject their return oil” into the pipeline continues to “suffocate” refiners like Flint Hills and Petro Star.

The ultimate cost of cleaning up the sulfolane spill is not known, but it could run to tens of millions of dollars. Groundwater tests first showed signs of the solvent on the property in 2001 when Williams owned the refinery, but it wasn’t until 2009 that water tests by Flint Hills showed that contamination had spread off the property.

The plume is about 2.5 miles wide and 3 miles long. Residents in that area have been getting bottled water from Flint Hills while monitoring and research continues.

The company has tangled with the state Department of Environmental Conservation over what the appropriate level of cleanup is for the site and on property near the refinery. It is also battling the former owner of the refinery in court over liability for the spill.

A press release from Fairbanks GOP lawmakers quoted Rep. Doug Isaacson as saying he was “livid” over what he said was a foreseeable and preventable action, while Rep. Tammie Wilson blamed “unrealistic expectations” by the DEC. Rep. Pete Higgins said that DEC decisions “forced Flint Hills into making this announcement.” Sen. Pete Kelly said the state should try to reverse the decision, while Sen. Click Bishop said this will make it harder to sell the Air Force on basing F-35s at Eielson Air Force Base.

'Onerous regulation'

Gov. Sean Parnell said he is concerned about the job loss and directed the state labor department to help them “find new opportunities in Alaska’s strong economy.” Rep. Don Young blamed the action on “diminished supplies and onerous regulation.”

Flint Hills Resources, a subsidiary of Koch Industries, is a privately held refining and chemical company with operations in Alaska, Minnesota and Texas.

A press release from the Democratic Party complained that the wealthy Koch brothers, advocates of free market principles and owners of Flint Hills Resources, are willing to spend a fortune on political ads, while at the same time taking an action that harms Alaskans.

“The Koch Brothers are closing the refinery and tossing Alaska aside while choosing to invest hundreds of millions in political attacks. It shows how little they care about Alaska and Alaskans,” Mike Wenstrup, Fairbanks resident and chairman of the Alaska Democratic Party, said in a press release.

The decision is a major blow to the Fairbanks economy, as the refinery, which has an assessed valuation of about $143 million -- down from $169 million a decade ago -- is the fourth largest taxpayer in the Fairbanks North Star Borough.

Flint Hills said gasoline production would end by May 1, while jet fuel and heating oil production would end no later than June 1.

“The company will continue to market fuels through its terminals in Anchorage and Fairbanks. The supply for those terminals will come from another source,” the company said in a letter released to the public at 3 p.m. Tuesday.

Employees learned about the shutdown in the morning, while political leaders heard about it afterwards.

'A complete shock'

The North Pole refinery has the capacity to produce about 85,000 barrels a day from North Slope crude, with about 60 percent of its output going to aviation fuel. A year ago the state and Flint Hills signed a five-year deal to buy royalty oil for the North Pole plant.

“This was a complete shock,” North Pole Mayor Bryce Ward said. “I had no idea this was coming. All the indications we had was that the state was working with Flint Hills and that Flint Hills was working with the state.”

Borough Mayor Luke Hopkins said he was disappointed with the news and the loss of about 80 high-paying jobs.

“Here we are with resources all over the place and we’re bringing stuff in with a barge from Singapore,” he said.

Flint Hills said it would encourage other employeesto find jobs at Flint Hills facilities elsewhere and would provide moving assistance to those who landed new positions.

The refinery, which went into operation with the opening of the trans-Alaska pipeline in June 1977, has been a key element in the local economy ever since. Over the past decade, production at the refinery has declined, in large part because it became cheaper for international air carriers to import fuel to Anchorage than to have it refined and shipped by the Alaska Railroad from North Pole.

The railroad runs trains north and south five days a week hauling petroleum products. A railroad spokesman said it was too soon to say what the shutdown will mean to the railroad.

Flint Hills acquired the refinery in 2004 from Williams Alaska Petroleum, which acquired it from Mapco Alaska in 1998. The refinery was expanded in 1998 to handle up to 226,500 barrels a day.

Contact Dermot Cole at dermot(at)alaskadispatch.com. Follow him on Twitter at @DermotMCole