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ARRC willing, hesitant to operate FHR Top executive says Alaska Railroad would be in ‘serious trouble’ without an oil refinery in the Interior part of the state Eric Lidji Petroleum News
The top executive of the Alaska Railroad Corp. said the company doesn’t want to operate an economically troubled oil refinery in the Interior, but might do so if asked by the state.
“Do we want to own a refinery? That’s not my first choice. That is not a core business of the railroad. I don’t know the first thing about operating a refinery,” Pat Gamble, president and chief executive officer of Alaska Railroad Corp., told the Anchorage Chamber of Commerce May 11. “But I’ll tell you this: If the State of Alaska makes a determination that (Alaska is) going to own this refinery and that the best entity to figure that will be the railroad — because it’s profitable and it earns its way — then I’m going to do my darnedest to try to figure out what that value chain looks like for the state.”
The state first floated the idea of the Alaska Railroad taking over the Flint Hills Refinery toward the end of last year. At the time, the Alaska Railroad said it didn’t want to own the refinery, but saw a need for having a refinery in the Interior. Gamble said he wasn’t speaking for Flint Hills, but was addressing general issues facing an Interior refinery.
The Alaska Railroad hauls jet fuel every day from the North Pole refinery to Ted Stevens Anchorage International Airport, deliveries that represent a major piece of the railroad’s business. Those shipments have declined recently due to a drop in cargo flights. “If they shut that refinery down, the little Alaska Railroad is in serious trouble,” Gamble said.
The problems at the Flint Hills Refinery began as the price of crude oil began to rise in recent years. The company also blamed new federal environmental standards for challenging its economics. Last year, Flint Hills put the refinery up for sale while it weighed its options.
One such option is to re-negotiate a supply contract with the state. Currently, the Flint Hills Refinery exclusively processes state royalty oil based on a contract from 2004. But Gamble said the contract is “pretty solid” and would be legally difficult to change.
‘A very, very tough decision’ Gamble said the state asked the Railroad if it could “build a value chain for the State of Alaska that’s equal to or better than the one that Flint Hills can build for themselves, and if so, explain convincingly, to the right people, what that might be before we would go forward and think about owning it as a state entity, or spinning it off in a model like the Alaska Railroad or something like that. We’re in the process of doing that right now.”
In addition to selling the refinery and having the state take it over, another option discussed publically is converting the refinery into solely a distribution terminal.
Gamble said the drop in oil prices toward the end of last year improved the economics of the refinery, making it profitable in the short term. Continued stability in prices, Gamble said, would give the state and the railroad more time to find and implement a solution.
Gamble noted the Legislature would have final constitutional authority over any proposal involving the value of state resources, which he called “a very, very tough decision.”
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