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Flint Hills puts Alaska refinery project on hold North Pole refiner has until January 2007 to invest $100 million; says will announce clean-fuels project in next few weeks Associated Press
Flint Hills has delayed awarding a $200 million contract to expand its North Pole refinery, the Fairbanks Daily News-Miner reported May 25.
The project would have allowed the refinery to produce low-sulfur diesel and gasoline, meeting new Environmental Protection Agency national requirements that come into effect in 2006-07. Flint Hills spokesman Jeff Cook could say little about the decision other than the company is taking another look at all of its options to provide the cleaner-burning fuels.
“We will have a clean-fuels project,” Cook said. Flint Hills expects to release details of the project “in the next few weeks.”
The delay came as a surprise to an officer with one of two contractors hoping to win the bid to build the expansion, which would employ more than 400 local workers.
“I was disappointed, definitely,” said Dave Matthews, vice president and Alaska general manager for H.C. Price. “It was a large project for Fairbanks.”
Cook said project estimates have doubled, bringing the price tag for the work to more than $200 million. Part of the increase comes from the higher cost of steel. Another reason is that what might have been a good option six or seven months ago may not be viable now, Cook said. Banks thinks Flint Hills will meet $100 million investment commitment Flint Hills is obligated to spend at least $100 million on expanding its production capabilities or help another refinery install the necessary equipment to produce low-sulfur fuel under its agreement with the state to purchase royalty oil, said Kevin Banks, a senior commercial analyst with the Division of Oil and Gas. Under its contract with the state, the refiner can purchase as little as 56,000 and up to 77,000 barrels of North Slope crude per day; it has been purchasing an average of 65,000 barrels per day, he said.
Flint Hills agreed to make the investment “on or before the effective dates of the clean fuels requirements of the EPA regulations,” which are June 2006 for ultra-low sulfur diesel and January 2007 for ultra-low sulfur gasoline.
“We were supposed to make a “commercially reasonable effort to meet those deadlines,” Cook told Petroleum News.
He said part of the agreement with the state called for an engineering study of the company’s North Slope refinery, which is under way.
Cook also said the agreement was “expected to exceed $100 million,” but that amount “was not definite.”
“It’s my impression they will meet the $100 million option of this contract. … Their options include importing it, buying it from another refinery in state or refining it themselves,” Banks said.
In general, refineries operate on slim margins, Banks said. The new EPA regulations that direct the sale of a new product can also require new production equipment and construction.
“If that’s the case, they have to spend a bunch of money and not make any more money (from sales),” he said.
—Petroleum News contributed to this article
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