North Pole refinery winds down operations ahead of closure

Dermot Cole

NORTH POLE -- Oil refining in North Pole won't come to a sudden halt this weekend when the Flint Hills Refinery stops taking crude oil from the trans-Alaska pipeline, but it will mark the end of an era.

After 37 years, Alaska's largest refinery is scheduled to stop taking oil from the pipeline as of 8 a.m. Saturday, but it won't be like flipping a switch, say longtime refinery employees Shaun Coghill and Mike Shefchik.

"It takes a couple of days to do it right. You have flows and temperature that you need to step down in a controlled manner," said the 32-year-old Shefchik, a 12-year employee who began as an intern and is now an operations manager.

"If you just shut it off, all the little pieces of metal expand and contract differently. The potential is for a very unsafe environment," said Shefchik.

The way to keep it safe is to be systematic and careful, traits that are vital whether the refinery is running at full capacity or is getting down to the last drop, said Coghill, 38, a supervisor in process safety.

"The faster you shut it down, the faster things can get out of control," he said. "So you just take it nice and easy."

Some local refining will continue after this weekend at the Petro Star Refinery next to Flint Hills; it has about one-tenth the capacity of the larger refinery.

Petro Star produces jet fuel and heating fuel and will take over as the supplier of the naphtha used to fire three Golden Valley Electric Association generators in North Pole.

Dedicated in 1977

Flint Hills has already started to taper its operations, ending gasoline production May 1 and keeping its asphalt line shut down this spring. These reductions follow the shutdown in 2010 and 2012 of its two other crude processing units -- changes blamed in part on a slowdown in the world jet fuel market after the economic collapse and cheaper fuel brought in from overseas by tankers.

After Flint Hills refines its final barrel, the North Pole refinery will transform into a fuel-receiving and shipping terminal, using fuel shipped in from other refineries via barges and the Alaska Railroad.

This reverses an economic pattern established shortly after the trans-Alaska pipeline began pumping oil from Prudhoe Bay to Valdez.

At the refinery dedication ceremony in 1977, Sen. John Butrovich spoke about the old days when Fairbanks relied on wood heat. He marveled that the community would no longer be at the end of a supply chain stretching thousands of miles to the Lower 48.

"The refinery is one of the most significant developments for Interior Alaska that we have had in my time," said Butrovich, a territorial and state legislator for three decades.

With the shutdown this weekend, Fairbanks is again at the end of that supply chain, more dependent on energy shipped in from elsewhere in the state or elsewhere in the world.

In the near future, the impact on prices for consumers remains unclear. It's uncertain if the refinery will reopen under new ownership.

During a recent interview at the refinery, Shefchik and Coghill said the decommissioning requires the removal of all traces of hydrocarbons from the extensive system of pipes, tanks and equipment that make up the refinery, a process expected to take months.

"We have to separate it from our tank farm, the loading and unloading operations, so we can continue that but make sure all this is disconnected," Coghill said.

"We want to make sure that we succeed at putting it to bed in such a way that if something does come up and someone picks it up, they have the map to put it back into service," Coghill said. Or it could be dismantled in the future.

Oil returned to the pipeline

There are 143 refineries in the United States, according to the U.S. Energy Information Administration, about half as many as there were in 1980.

Since 1977, just 11 refineries have been built in the U.S., two of which are the Petro Star refineries in North Pole and Valdez. All are considerably smaller than Flint Hills.

Complicating the situation are two major factors, one economic and one environmental.

Flint Hills and Petro Star do not use all the oil they refine. In fact, they return about 75 percent of every barrel they remove from the trans-Alaska pipeline. Because they return oil, stripped of some elements used to make high-value products, is not worth as much. Consequently, they have to pay a "quality bank" penalty to compensate companies that use the returned oil.

Flint Hills says the quality bank payments are too high and it has challenged the formula established by the Federal Energy Regulatory Commission. The major oil companies have objected to the complaints from Flint Hills and Petro Star.

Cleanup costs cloud economics

The environmental challenges relate to sulfolane, a solvent used in the manufacturing of gasoline. Repeated spills of sulfolane, going back to the 1980s when the Williams Cos. owned the refinery have caused groundwater pollution on about 6 square miles in the North Pole area.

Until the ultimate cleanup costs of sulfolane pollution are established, it is unlikely that the future economics will be anything but fuzzy.

Flint Hills says that most of the leaks occurred in the years before it bought the refinery from Williams a decade ago.

The final cleanup bill will depend on what level of sulfolane is deemed safe in groundwater and how the state, Flint Hills and Williams will divide the bill. As the former owner of the property, the state faces some liability and is negotiating with Flint Hills and Williams.

Flint Hills, which is owned by Koch Industries, announced its shutdown plans in February.

There are 126 employees at the refinery, a number that is to drop to about 35 when the refinery is decommissioned, the company says, along with about 10 employees at its Anchorage facility.

Coghill and Shefchik, both lifelong residents, are among 20 or so refinery employees who have already landed jobs elsewhere in the company and are planning to leave Alaska. They have been hired at a Flint Hills refinery outside of Minneapolis.

"I had no plans of leaving," Coghill said. "My wife's due here in a couple of weeks (with) our second kid. My family's not excited about us leaving. That would not have been our first choice. We just bought a house six months ago so we were planning on staying for the long term."

But he said when he found out his job was going away, he knew he wanted to stay with Flint Hills and he looked for other opportunities because he believes in the company.

"I like the principles here," he said. "It clicks with me."

Shefchik said he is looking forward to a new adventure and that his wife is from Minnesota, so the job with Flint Hills is a good chance to advance his career.

Shefchik said that the refinery workforce has been focused on both decommissioning the refinery and setting up the tank farm so it can continue independently.

"I don't foresee any interruption of supply," he said. "We just won't be making it here."

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