Flint Hills Alaska Refinery to Shut Amid ‘Enormous’ Costs

Feb 05, 2014 1:31 pm ET

(Adds number of employees in last paragraph. Run BMAP NEWS 64657<GO> to locate the refinery.)

Feb. 5 (Bloomberg) -- Flint Hills Resources LLC will begin in May to halt operations permanently at the North Pole refinery, Alaska’s largest by capacity, citing poor economics and “enormous” costs for cleaning up soil and groundwater.

The subsidiary of Koch Industries Inc. will take the extraction unit at the plant near Fairbanks out of service on May 1, ending gasoline production, and shut the No. 2 crude unit by June 1, stopping output of jet fuel and all other refined products. The Wichita, Kansas-based company said in an e-mailed statement yesterday that it will continue to sell fuels at terminals in Anchorage and Fairbanks.

The announcement follows the shutdown of the refinery’s No. 1 crude unit in early 2012 because of what Flint Hills described as “challenging economics” and rising crude prices. Cleaning contaminated soil and groundwater has further compounded costs, the company said.

“Our company has spent an enormous amount of money and resources addressing soil and groundwater contamination,” Mike Brose, manager of the North Pole refinery, said in the statement. “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.”

Spot Alaska North Slope crude prices have climbed 9.2 percent in the past three years as oil production in the state declines. Output has dropped every year since 2002 amid a shrinking yield from existing wells.

Sulfolane Contamination

Sulfolane contamination at the refinery occurred when Williams Cos. owned the plant and the state of Alaska held the land beneath it, Brose said. Flint Hills bought the complex and terminals in Fairbanks and Anchorage in July 2004, the company’s website shows.

“Neither Williams nor the state of Alaska have accepted any responsibility for the cleanup,” he said.

Ty Keltner, a spokesman for the Alaska Department of Environmental Conservation, said it’s preparing a response to the company’s announcement. Tom Droege, a spokesman for Williams, didn’t immediately respond to a telephone request for comment.

The North Pole complex can run 226,500 barrels a day, data compiled by Bloomberg show. BP Plc, ConocoPhillips, Tesoro Corp. and Petro Star Inc. also owned refineries in Alaska as of Jan. 1, 2013, according to an Energy Information Administration report.

Storage Capacity

Flint Hills will sell refined products at the terminals in Alaska using fuel shipped by rail or truck from refiners in the state and “other potential sources,” Jake Reint, a Koch spokesman, said by e-mail yesterday. The refinery has 720,000 barrels of tank storage capacity that’s linked to the company’s North Pole terminal.

The company “will entertain offers for the assets associated with the refinery as an ongoing enterprise or as a terminal/marketing operation,” Brose said. The refinery will keep 35 employees to operate the North Pole site and 10 to work at the Port of Anchorage terminal, according to the statement.

That means 81 jobs out of the current 126-member refinery workforce will be cut after Nov. 1, Jeff Cook, a spokesman for the refinery, said today by phone. Those employees will be relocated if they qualify for jobs at other Koch sites or will get severance packages, Cook said.

--Editors: Charlotte Porter, Bill Banker