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State must act now to save North Pole refinery, vital to Interior Alaska

Frank Murkowski
OPINION: There are several steps that the state could take to make the former Flint Hills refinery attractive to a buyer, and there is no reason why a refinery that literally sits on top of the trans-Alaska pipeline should not be competitive. Courtesy Flint Hills Resources Alaska

It’s time for Fairbanks to turn out for another BRAC effort.

Today there is a threat to Eielson Air Force Base, and it is very real. The proposed shutdown of the North Pole Refinery (NPR) comes at the worst possible time -- a time when the Pentagon has called for another BRAC review.

The refinery shutdown will have a very negative impact on the continued operation of Eielson. The proximity of the refinery to Eielson assures the military of an almost unlimited fuel supply with the capacity to refine both gasoline and jet fuel. With the shutdown of NPR, Interior Alaska will have lost one of the major justifications for continued operation of Eielson, potentially affecting nearly one-third of the jobs in Fairbanks.

This does not include the potential loss of the Air Force stationing the F-35s at Eielson or the economic impact to the Alaska Railroad.

We cannot wait. Now is the time for Fairbanks to come together to undertake an all-out effort to make NPR attractive to a new buyer. This should include the Fairbanks Chamber of Commerce, the Fairbanks Economic Development Council, the business community and all interested community members.

When I was governor I had the privilege of working with the greater Fairbanks area and the congressional delegation in the successful effort to ensure that the Eielson Air Force Base was not included in the BRAC base closure proposals.

Fairbanks and North Pole came together and made the case for the continuation of Eielson. It was a grand example of the Golden Heart of Alaska making the case for retention in our nation’s security interests.

I suggest the following action plan to make NPR attractive to a new buyer. Select a leadership group. Draft an agenda. Request the Fairbanks legislative delegation to actively join and lead the community effort with the administration. Request that the governor and his cabinet participate in the community’s planning and implement the community’s plan.

There are also a number of things the governor and his administration could do to make the refinery attractive to a new buyer:

•  A new, more reasonable cleanup standard must be established by the Department of Environmental Conservation. This must include a sulfolane standard for both the NPR property and off-site. The standard has to be comparable with cleanup standards that apply to other refineries in the United States and Canada.

•  State royalty oil pricing policies must be re-examined to ensure that royalty oil is priced similarly to non-royalty oil or that produced by the North Slope producers.

•  Most important, the Department of Natural Resources must promptly review the impact of the Quality Bank on NPR and Petro Star. The state charges NPR and Petro Star for the oil that is returned to the pipeline after the refining process pursuant to a very complex formula. This results in a royalty price that creates a great drag on the economics of the refineries. This payment has been a major factor in the inability of Flint Hills and Petro Star to be competitive. The state can expect objections to this proposed change from the North Slope producers and the Tesoro refinery on the Kenai Peninsula (which doesn’t have to pay the Quality Bank).

•  The North Slope producers should be asked how they can help the State in its efforts to attract a new operator. Might it be possible to interest one or more of the producers to temporarily take over the NPR operations until a new buyer can be found? It's not unreasonable to ask the Producers for assistance. After all, the State has recently enacted substantial tax relief for the producers.

•  The responsibility for on- and off-site cleanup allegedly involves Williams Co., Flint Hills and the State of Alaska. Proceeds from litigation could be directed toward a water delivery system to North Pole residents affected by the sulfolane spill. The state, through AIDEA, could advance fund the project, pending settlement or direction of the Court.

I believe that pursuing these steps could make Flint Hills economically attractive to a new buyer. There is no reason why a refinery that literally sits on top of TAPS should not be competitive.

Consider the oil that moving through the pipeline some 400 miles from the North Slope to Fairbanks. A portion of that oil is taken out for the Flint Hills and Petro Star refineries. Most of the volume continues another 370 miles to the terminal at Valdez and into the storage tanks there. Large oil tankers then take the oil down to refineries at Anacortes, Wash., and to other refineries farther south.

Yet, it appears that the cost of Alaska oil arriving in Washington sells for less than the oil taken out of the pipeline in Fairbanks. It is reasonable to ask for an explanation why this is the case. The Quality Bank payments must clearly have a lot to do with this unfavorable economic result.

All stops must be pulled out now. Delay will result in a permanent shutdown or the breakup of NPR’s integrated capabilities. Once it is gone it will not come back. We have seen this happen in the closure of the two pulp mills in Southeast Alaska.

This situation mandates an Alaska solution within the confines of our own state government. We must have the will to adjust the economics rather than lose this vital cog in the wheel of Interior Alaska’s economic future.

Frank Murkowski was governor of Alaska from 2002 to 2006, one of its U.S. senators from 1980 to 2002, and chairman of the Senate Energy Committee from 1995 to 2001.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch. Alaska Dispatch welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.