Future of North Pole Refinery in question
Flint Hills shuts down Texas plant temporarily
Published Wednesday, December 3, 2008
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Stumble It!FAIRBANKS — Market conditions are driving the temporary shutdown of a Flint Hills Resources chemical plant in Texas, while the future of the company’s North Pole oil refinery remains in question.
Flint Hills Resources has started closing down its Port Arthur, Texas, chemical plant because of a general economic slump and poor market conditions for the plant’s products, said Katie Stavinoha, spokeswoman for Flint Hills’ parent company, Koch Industries.
“Based on a decline in demand for the products produced at that plant, and in direct correlation to the softening economy, we made the decision to temporarily halt production there,” she said. “We do not have an anticipated restart date at this point. The decision will be totally based on the market outlook.”
The Port Arthur plant makes olefins, a building block for plastics, packaging and other consumer products.
The company announced in November the permanent closure of a chemical plant that manufactured polymers in Odessa, Texas. Production costs at the facility were too high to offer a competitive position for its products on the global market, Stavinoha said.
Earlier this year, Flint Hills officials said they will make a major decision about the future of the North Pole refinery by the end of the year. That timeline holds, said Jeff Cook, director of external affairs for Flint Hills Resources Alaska.
Stavinoha had little to say about the status of the North Pole refinery.
“The review continues,” she said.
The company is considering three options: to close or sell the refinery, to invest in major upgrades allowing more production volume and lower operating costs or to reconfigure the plant.
The North Pole facility turns North Slope crude oil into jet fuel, home heating fuel and a small amount of vehicle fuel.
Testifying before a legislative committee recently, Cook said the refinery has production challenges and struggles with the high price it pays for state royalty oil. He said the refinery has been losing money for most of 2008.
Community Discussion
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Awww "losing money for most of 2008". Maybe we do have something in common.
hey what we have been paying for heating oil, gasokine and diesel we have been ripped off. as far as i am concerned flint hills can close the north pole plant down and leave to never darken our doors again.
All the speculation, the end of the year is less than a month away. Then we will know what will happen. Anyone know if Jeff Cook's house is for sale.
The Cooks are not going to sell their home anytime soon, even if the refinery closes.
" the permanent closure of a chemical plant that manufactured polymers in Odessa, Texas. Production costs at the facility were too high to offer a competitive position for its products on the global market, Stavinoha said."
Global market creating less for us based off what the WORLD will buy, not what America needs or America will buy but what they can sale on the world market. Cutting our Gross National Production amounts at the same time weakening our dollar a little more.
We are a market to them, demographic community. On a pie chart in some board room we are a pimple on a frogs butt to them, not families and neighbors. If they sale the refinery we (state or borough) should buy it and follow suite for the state by getting into the oil buisness.
The $1 extra we have been paying for gasoline translates to $285 millions dollars extra that the two refineries are taking away from Alaska's economy. To put this in perspective, Flint Hills only paid $265 million when they bought the refinery 4 years ago and that deal included a 3% ownership in the pipeline.
There is no way that they are actually operating at a loss. They might be able to fudge the books and increase the rate of depreciation on assets in order to make it look that way but no one knows since they are a private company and do not have to file quarterly reports. Personally I hope Flint Hills does leave and create an opportunity for the Alaska Energy Authority or possible the Alaska Railroad to take over ownership. At least the previous tenant, Williams, never tried charging $1 a gallon more than the closest refineries in Washington.
"and a small amount of vehicle fuel."
That is the part all you conspiracy wingnuts keep missing during your rants about gas prices. It is sad that after all this time most of you have still failed to do even a modicum of research on the topic you keep spouting off on.
"Free" markets working fine in the oil business.. What refinery companies call loses are not really loses but just not as much profit as they could potentially be getting. I have heard that the direction of refining in this country is the same as for other industries in the past decade, that being of outsourcing. Tankers coming into this country will have refined products instead of crude and those refineries will be built in places like the middle east where labor can be had on the cheap and environmental regulation if at all are years out. Drill baby drill might become irrelevant if there is no refinery capacity here because of plant closures. This would be bad on several fronts. Shortages of say unleaded gas, or #1 fuel oil on the world market would be easy to artificially create just by cutting back production which would net huge profits and these monopolies on foreign lands would be impossible to regulate. This is yet another reason we should as a country be moving aggressively in other directions besides fossil fuels.
North Star crude sold at $42 a barrel yesterday. For everyone who blame the producers on the slope, where do you think the real increase price of fuel occurs. Like a salmon fisherman, he sells salmon for 35 cents a lb and by the time it reaches the market in Seattle, it cost $18 a lb. Same free market principle. As you stop to spend $5 for a latte, how much do you think the Columbian farmer made raising those beans. By the way, why are you willing to pay $5 for 8 ounces of coffee?
We keep hearing that Flint Hills is operating at a loss. Until they open thier books, they can say anything. Wonder if thier books are closed to the fed and state tax people? What about thier share holders?
Kind of hard to fiqure out how you can be operating at a loss when you sell everything you make at a dollar to a dollar and a half above the rest of the market.
Go ahead and let Flint Hills close their North Pole refinery. Once they start down that path all of the environmental clean-up requirements are triggered. Flint Hills spends millions of dollars cleaning up the site. When they bought the refinery they assumed the environmental liabilities from past owners. Bottom line - they can't afford to close the NP refinery.
Fairbanksgas you said:
"12/3/2008, 7:15 a.m.
The $1 extra we have been paying for gasoline translates to $285 millions dollars extra that the two refineries are taking away from Alaska's economy. To put this in perspective, Flint Hills only paid $265 million when they bought the refinery 4 years ago and that deal included a 3% ownership in the pipeline.
There is no way that they are actually operating at a loss. They might be able to fudge the books and increase the rate of depreciation on assets in order to make it look that way but no one knows since they are a private company and do not have to file quarterly reports. Personally I hope Flint Hills does leave and create an opportunity for the Alaska Energy Authority or possible the Alaska Railroad to take over ownership. At least the previous tenant, Williams, never tried charging $1 a gallon more than the closest refineries in Washington."
=============================
Fairbanksgas,
Is it possible that Flint Hills made some bad bets on the "over-the-counter" futures energy trades with a well known Alaskan airline?
The countries largest alochol producer VerSun, just went BK over some bad bets on corn futures.
For every winner, there is a loser
Jeff Cook out of work = priceless.
Fairbanksgas you said:
12/3/2008, 7:15 a.m.
"The $1 extra we have been paying for gasoline translates to $285 millions dollars extra that the two refineries are taking away from Alaska's economy. To put this in perspective, Flint Hills only paid $265 million when they bought the refinery 4 years ago and that deal included a 3% ownership in the pipeline.
There is no way that they are actually operating at a loss. They might be able to fudge the books and increase the rate of depreciation on assets in order to make it look that way but no one knows since they are a private company and do not have to file quarterly reports. Personally I hope Flint Hills does leave and create an opportunity for the Alaska Energy Authority or possible the Alaska Railroad to take over ownership. At least the previous tenant, Williams, never tried charging $1 a gallon more than the closest refineries in Washington."
===========================
Is it not possible that Flint Hills got in trouble with "Over-the-Counter" energy futures trades, with the airlines, just like Williams Bros. did with Enron?
I note that the country's largest ethanol producer, "VeraSun" just went bankrupt because of some bad trading bets on the corn futures markets.
For every winner, there is a loser on these zero-sum games!
Flint Hills supplies 100% of the Fairbanks Airports fuel, 100% of Ft Wainwrights fuel, 51% of the Anchorage Airports Fuel, 75% of Fairbanks gasoline and heating oil etc etc etc.
The Nikinski Refinery is operating at 100% and cannot feed the needs of Anchorage. That is why you see so many rail cars of fuel going from FHR to Anchorage 2x to 3x a day.
If FHR closes - where do you expect to get gas for your cars or heating oil from? Don't look at Petro Star - they are already doing 100% with government contracts from Eielson afb. They can't make gasoline.
Barge up from Seattle, then rail to Fairbanks?? You think that can be done? By Whom??? The Crwoley barges that service the SE Alaska come up spring, summer, and fall - no winter. Above Sitka the Crowley barges for the northern villages is a once per year summer stop. You think Crowley has a fresh tug and 450' barge full of unleaded sitting in Seattle with your name on it? Think again. The infrastructure to haul gas (and other barges full of home heating, diesel, jet fuel, asphalt) to Anchorage, and store a few months supply before the next barge arrives is not there..... heck, storage for a few weeks or days is not there or in Fairbanks. Year round barge service isn't there either due to weather.
Bottom line. FHR, like it or not, is a local reasource that needs to stay until Alaska's Interior has a the infrastructure to go a different direction. FHR closes - you can expect to pay $10+ gallon for gasoline and $14 gallon for home heating........ and be happy about it...... since your neighbors who can't afford it have had to quit there jobs in town and can only afford to work where they can walk.
You folks are too used to hitting the 'Go' key on your computer and thinking the work is done. You need to leave cyber and blog space for a few minutes and look at the real world around you.
airboat454 you stated:
12/3/2008, 8:38 a.m.
We keep hearing that Flint Hills is operating at a loss. Until they open thier books, they can say anything. Wonder if thier books are closed to the fed and state tax people? What about thier share holders?
Kind of hard to fiqure out how you can be operating at a loss when you sell everything you make at a dollar to a dollar and a half above the rest of the market.
===========================
What about thier share holders?
Flint Hills is the 2nd largest privately owned company in the United States. It is owned by the Koch brothers, Charles G. Koch and David H. Koch.
Their father, Fred C. Koch, helped found the John Birch Society and
http://en.wikipedia.org/wiki/Koch_Indust...
Charles G. Koch co-founded the Cato Institute,which was behind the move by the Bush administration to privatize Social Security.
http://en.wikipedia.org/wiki/Charles_G._...
.
Glacierwolf
"Bottom line."???
Flint Hills has a "monoply" on the energy resources of the interior of Alaska and can charge whatever they like in the current political climate.
Now tell us who was the "counter party" to Alaska Airlines Over-the-Counter energy futures trades?
No, Alaska isn't hurting, it's just greed.
Alaska Airlines boast it had saved $42.3 million in changing it's "Mileage Plan terms" according to their SEC filings and have also "hedged" (profited) from their fuel costs changes through an unnamed OTC third party. (Flint Hills refinery maybe?)
'$42.3 million. This benefit is recorded separately in operating revenues as "Change in Mileage Plan terms."'
See Alaska's third quarter SEC filing:
http://www.sec.gov/Archives/edgar/data/7...
from:
http://www.sec.gov/cgi-bin/browse-edgar?...
Here is some of Glacierwolf's etc, etc, etc...
GVEA has significant power generating capacity that is dependent upon product from that refinery. Whatever happens, we here in Fairbanks(and the rest of the state) can ill afford to have the refinery shut down. It can not be allowed to happen, and it will not. It is "to big" to fail.
SHUT IT DOWN, CROOKS! It might only cost us a few cents more per gallon to ship it in from Seattle anyhow.
Glacierwolf, your argument does not stand up at all. Last time I checked Anchorage was an ice free port and 95% of all our goods come up on barges for very little cost. It what you said was true we would be paying 1.5 times as much for everything instead of 2-5% more.
I did some comparisons to other products and a gallon of milk or orange juice is actually cheaper in Fairbanks than it is in Seattle since we have no sales tax. Have we had milk shortages since the Mat-Maid dairy closed down? Do you think that it is more economical to ship 1 gallon containers than bulk quantities of fuel in tankers?
The 28 cent road tax on gas in Washington should more than cover any transportation costs and we should NEVER have a higher pump price in our metro areas than in Washington. The bottom line is that the closing of Flint Hills would force these new supply chains to be created and the end result would be lower prices for all. I'm sure that the world shipping market could find a few extra fuel barges to divert to Alaska.
While this was happening a co-op could be formed to purchase and upgrade the efficiency of the refinery to be able to compete in the world market. We could resume exporting the naptha and surplus gasoline like we used to 5 years ago. Until this happens we we continue to pay an extra $285 millions dollars to Flint Hills and Tesoro.
By the way, what does a shutdown of a plastics plant in Texas have to do with the profitability of an Alaska refinery? I fail to see any connection other than the name of the holding company. Even Jeff Cook testified that the demand for fuel has been relatively constant and is not changing even with the dramatic run up in prices that we experienced.
FairbanksGas,
Didn't Flint Hills commit to Murkowski in 2004 to produce low sulfer fuels in return for Alaskan Royality OIL?
And what is this about, not shipping fuel to Alaska, Flint Hills already does this.
=====================
"Flint Hills will have refinery modifications in place to meet a January 2007 deadline for making low-sulfur gasoline but getting the facilities to make clean diesel will take longer, Cook said."
==================
From: Tim Bradner, Alaska Journal of Commerce
Published November 23, 2004 12:00 AM
Clean Diesel Fuel Will Be Available, but Costly, in Alaska
http://www.enn.com/top_stories/article/4...
ANCHORAGE − Flint Hills Resources is gearing up for a $170 million modification project at its refinery at North Pole, near Fairbanks, that will produce ultra-low sulfur gasoline and diesel fuel.
Construction will be underway by late spring 2005 on the project, according to Jeff Cook, Alaska spokesman for Flint Hills.
The new clean fuels are mandated by U.S. Environmental Protection Agency rules. These rules have caused concern among trucking firms and others operating diesel engines that there may be problems getting the fuel in Alaska.
Flint Hills will have refinery modifications in place to meet a January 2007 deadline for making low-sulfur gasoline but getting the facilities to make clean diesel will take longer, Cook said.
Flint Hills committed to manufacturing the clean fuels in Alaska when it purchased the North Pole refinery from Williams Alaska Petroleum Co. in 2003. An important consideration is that Flint Hills will make an Arctic grade of the clean diesel that can be used in the extreme cold temperatures common in Interior and Northern Alaska.
Diesel engine operators in those regions cannot use conventional diesel fuel because it gels in cold temperatures.
The EPA rule regarding gasoline requires a limit of 30 parts per million sulfur content, while the rule affecting diesel will require 15 ppm or less.
The diesel rule actually requires truck engine manufacturers to build 2007 model engines with new-technology pollution-control equipment. The equipment is very sensitive to sulfur, however, and will need diesel fuel with 15 ppm or less sulfur content. Higher levels of sulfur could damage the engines and pollution-control equipment.
Cook said the engineering for the ultra-clean diesel has turned out to be more complex than expected, and it may be late 2007 before the refinery modifications can be completed to produce the clean diesel at North Pole.
Tesoro Alaska Petroleum Co., which owns and operates a refinery at Nikiski, near Kenai, said it will import the fuel so that it is available for customers, but will not manufacture the fuel in the state.
more at link above:
Source: Knight Ridder/Tribune Business News
FairbanksGas,
Did Flint Hills ever produce that low sulfer fuel they promised Frank Murkowski in return for Alaska's royality OIL?
==============
Refineries in the Pacific Northwest have told state of Alaska officials that their costs for making the fuel will be about 5 cents a gallon more than making conventional diesel.However, estimates are that by the time the fuel is transported to Alaska it will cost 25 to 50 cents more than diesel now being sold. Ultra-clean conventional diesel will be made in Pacific Northwest refineries, from where it can be shipped by barge for use in Southeast and parts of Southcentral Alaska which experience milder winters.
However, conventional diesel cannot be used in the Interior or Northern Alaska during the winter.
Flint Hills would not comment on how it will price the Arctic-grade, ultra-clean diesel made in its North Pole refinery, but refining companies often price their products just under the cost of alternatives.
In this case, the only alternative way of getting Arctic-grade, ultra-clean diesel may be trucking it from refineries in Alberta, Canada, which will make the fuel for northern communities in Canada.
Trucking companies have estimated that it will cost 50 cents a gallon to truck the Arctic-grade clean diesel from the Alberta refineries to Fairbanks.
What happened to Frank Murkowski's contract with Flint Hills to produce low sulfur fuel in exchange for Alaska's royalty OIL?
======================
Please read on page 14
http://www.alaskajournal.com/pdf/ogrquar...
Alaska Oil and Gas Quarterly
September 2005
Cost Stall Low-Sulfur Production Plans
By Tim Bradner
Alaska Journal of Commerce
Note:
"Kevin Banks, commercial manager for the state of Division of Oil and Gas, said the state will work with Flint Hills in developing a revised schedule for the desulurization unit and will not attempt to enforce any penalty in the [royalty] oil contract."
==========================
Doesn’t this sound just like Exxon’s delaying tactics with Point Thomson?
.
They actually formed a partnership with their only competitor. Anti-trust???
"Flint Hills to join Tesoro in low-sulfur project" 12/11/2005
Flint Hills Resources Alaska has worked out a deal with Tesoro Alaska Petroleum to buy ultra-low sulfur diesel fuel and lowsulfur gasoline from Tesoro's refinery in Nikiski, near Kenai, rather than install facilities to remove sulfur from North Slope crude oil at the Flint Hills refinery at North Pole, near Fairbanks.
Flint Hills will pay $15 million to Tesoro under the deal, the companies announced. Flint Hills will invest another $8 million in facilities to transfer and store the clean fuels, which will be required under U.S. Environmental Protection Agency rules. Ultra-low sulfur diesel will be required beginning in 2006, and gasoline with lower sulfur levels in 2007.
Tesoro spokesman Kip Knudson said his company wouldn't comment on details of' the arrangement, but industry sources say it essentially involves a purchase commitment from Flint Hills for up to 6,000 barrels per day of ultra-low sulfur diesel and additional amounts of lowsulfur gasoline.
Flint Hills now ships jet fuel, gasoline and other products by rail from the North Pole refinery to markets in Anchorage, but under the arrangement with Tesoro it would distribute fuels from the Tesoro refinery to its customers in Southcentral Alaska, as well as transport the clean fuels to Fairbanks by rail. The company has meanwhile dropped plans for construction of a desulfurization unit at its North Pole refinery.
I agree with Fairbanksgas. Flint Hills is a privately owned company with no obligation or responsibility to the interior community. They have an effective monopoly in the interior and a duopoly statewide. Even though there is an element of at least cooperation in their operations as evidenced by their low-sulfur product sharing agreement it is highly unlikely that a legislative inquiry will find any evidence of price-fixing or "unconscionable" (beautiful word) price gouging. If the Beluga coal-to-liquids plant becomes a reality at some time in the future the Flint Hills market may well dry up because the high volume production of low-sulfur diesel and jet fuel with its strategic location on Cook Inlet will strand Flint Hills high and dry. I suspect this may very well be what is motivating Flint Hills to threaten closure, I suspect they would like very much to generate sufficient political fear and unrest to force the state to buy their obsolete low volume plant at a high price. If that tactic fails they have only one option left; gouge the market for all it is worth and milk their investment dry.
I don’t think Coal to liquid fuels are in the near horizon.
It is much more likely Flint Hills is creating fear in order to get more of Alaska’s royalty Oil.
My question was Flint Hills a counter-party to have some fuel hedge contracts to the airlines that went bad?
Is the Alaska consumer now paying to make up for Flint Hills' loses on these "over-the-counter" airline fuel hedges?
===================================
If you read the Alaska Airlines SEC filings I posted please note:
We have fuel purchase contracts that >>>fix the refining margin we will pay<<< for approximately 50% of our fuel consumption in the fourth quarter of 2008.
Page 49
Also
Note 3. Fuel Hedge Contracts
The Company’s operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risk associated with fluctuations in aircraft fuel prices, the Company periodically enters into primarily call options for crude oil, among other initiatives.
The Company records derivative instruments, all of which are currently fuel hedge contracts, on the balance sheet at their fair value. Changes in the fair value of these fuel hedge contracts are recorded each period in aircraft fuel expense.
The Company realized gains of $44.0 million and $16.8 million during the three months ended September 30, 2008 and 2007, respectively, on fuel hedge contracts that settled during the period. Gains on the settled hedges were $129.2 million and $24.5 million during the nine months ended September 30, 2008 and 2007, respectively.
The Company uses the "market approach" in determining the fair value of its hedge portfolio.
The Company’s >>>>fuel hedging contracts consist of over-the-counter contracts, which are not traded on an exchange.<<<< The fair value of these contracts is determined based on observable inputs that are readily available in active markets or can be derived from information available in active, quoted markets. Therefore, the Company has categorized these contracts as Level 2 in the fair value hierarchy described in SFAS 157.
Page 12
"Oil prices have declined from a record $147 per barrel in July to approximately $70 per barrel recently. That translates to a significant reduction in fuel cost for Air Group, although prices are still above historical levels. In July 2008, our average price of jet fuel per gallon was $4.19 and is currently around $2.20 per gallon. Oil prices continue to be volatile, however, and prices could rise again. We continue to execute our hedging strategy to help remove some of the impact of that volatility on our financial results.
Page 24
http://www.sec.gov/Archives/edgar/data/7...
http://www.sec.gov/cgi-bin/browse-edgar?...
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