Golden Valley Electric Association pursuing PetroStar partnership

Eric Lidji | Petroleum News

Golden Valley Electric Association is seeking regulatory approval for a contract with the refiner PetroStar Inc. The contract would replace a longstanding relationship with the refiner Flint Hills Resources Alaska Inc., which is shuttering its Alaska operations .

A pair of requests would allow the Interior electric cooperative to add the new contract to its quarterly fuel purchasing allowance and to subsequently increase those costs.

Since 2004, GVEA has bought all the fuel for its oil-fired plants from Flint Hills. When the refiner announced plans earlier this year to close its operations, GVEA was left without a source of naphtha for its North Pole Expansion Power Plant, which supplied more than 25 percent of the total energy requirements for the utility in 2013. "The abrupt loss of this fuel source put GVEA in a critical situation," Rate and Regulatory Analyst Paula Ashbridge wrote in a late May filing with the Regulatory Commission of Alaska.

While GVEA currently gets some power from the Southcentral region, constraints in the intertie connecting the regions make it impossible to replace the loss of naphtha using additional imported power, according to GVEA. "With only a few months to secure a fuel supplier, GVEA immediately assembled a task force to explore and research the economic feasibility of a variety of short-term, medium-term, and long-term fuel options," Ashbridge wrote. The task force is still determining a long-term solution, but GVEA believes PetroStar is the best option for addressing the problem in the meantime.

GVEA and PetroStar have agreed to a price for the fuel supply but have yet to sign a contract. The RCA has asked to see the contract before it rules on the GVEA request. GVEA has said the fuel price under the proposed PetroStar contract is "comparable" to the price under the previous Flint Hills. While the actual price is based upon indices, making it hard to predict, GVEA said the PetroStar contract would have been some 4 percent or 10 cents per gallon higher than the Flint Hills contract in January 2014.

The contract would require a short pipeline connecting the PetroStar refinery and the North Pole Expansion Plant, which are located on adjacent properties in North Pole.

The RCA has implemented both requests on an interim basis until September while it investigates the matter and is taking comments on both requests through July 9.

After years of scaling back its operations in Alaska, Flint Hills announced plans in February to gradually stop processing crude oil at its North Pole refinery.

The company blamed its decision on market conditions and an outstanding liability dispute over sulfolane contamination Flint Hills inherited from a previous operator.

The gradual shutdown called for ending the production of gasoline in May and ending the production of jet fuel and other refined products no later than June, while continuing to market jet fuel through Flint Hills terminals at the Anchorage and Fairbanks airports and maintaining a small staff to operate its 30 million gallon storage facility in North Pole for local distribution. The fuel for local distribution operation would come from third parties.

The sulfolane matter continues to play out through legal proceedings. But earlier this year Gov. Sean Parnell proposed incentives to encourage in-state refining of Alaska crude oil.

This article originally appeared in Petroleum News. It is republished here with permission.

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