Officials with Flint Hills Resources Alaska announced today that they will halt processing crude oil at the company’s North Pole refinery over the next few months and shut down the facility. As KUAC’s Tim Ellis reports, company officials decided to shut down the refinery because of rising costs to run it and shrinking profit margins – and ongoing costs of cleaning up groundwater tainted by an industrial solvent that leaked from the refinery for years.
The North Pole refinery has been processing since the summer of 1977, soon after the trans-Alaska pipeline began moving the crude from the North Slope.
But the refinery’s days are now numbered, since officials with Flint Hills Resources Alaska announced Tuesday that they will shut down the refinery by June 1st.
The announcement stunned local officials, like North Pole Mayor Bryce Ward.
“It was a shock to us,” Ward said.
Fairbanks North Star Borough Mayor Luke Hopkins says the shutdown is going to damage the area’s already frail economy and probably cause fuel prices to rise.
“It’s an incredible disappointment for our community,” Hopkins said.
Flint Hills spokesman Jeff Cook says the shutdown will eliminate 81 jobs. He says 35 refinery workers will stay on at the refinery until November. Ten workers at the company’s Port of Anchorage terminal will keep their jobs. The company is offering assistance to help laid-off workers find jobs locally or elsewhere with the company.
But Ward says those layoffs are only the tip of the iceberg. He says the refinery and its high-paying jobs, averaging $143,000 per year, support some 1,600 other jobs in the area, many of which he believes will also be lost due to the shutdown.
“The refinery contributes $100 million to the local economy every year,” he said.
Jim Dodson is president and CEO of the Fairbanks Economic Development Corporation. And he reckons the number of those support jobs is closer to about a thousand, because among other things the smaller PetroStar refinery next door to Flint Hills will remain open.
But he says it’s still a big hit to the area’s workforce. And for consumers, because it will likely lead to higher heating- and motor-fuel prices.
“It may help drive the cost up, and that’s exactly what we don’t need,” Dodson said.
The shutdown will cost both North Pole and the borough millions of dollars in tax revenues. The refinery has an assessed valuation of about $147 million, the fourth largest source of property-tax revenue in the borough.
Cook says officials with Flint Hills and its parent company, Koch Industries, decided to shut down the refinery due to several economic factors that’ve eroded its profitability in recent years.
“It’s a combination of things,” he said. “It’s the economics of refining, which are really tough. North Slope crude is higher-priced than alternative crudes, and our cost of processing are higher.”
Cook also cited the legal and financial burdens of dealing with groundwater contamination in the North Pole area caused by the leakage of sulfolane from the refinery for more than a decade. Flint Hills maintains the leakage occurred before it bought the facility in 2004 from Williams Alaska Petroleum, and that Williams failed to inform Flint Hills about the extent of the contamination.
“The uncertainties over the sulfolane,” he said, “and the fact that Williams is the one who caused the spills… y’know the state hasn’t brought them to the table.”
Cook says Flint Hills also faults the state for its failure to discover the contamination, and the extent to which it had spread, sooner. And for not putting more pressure on Williams to participate in mitigating the contamination.
He says last year’s decision by the state Department of Environmental Conservation to set a more stringent standard for the sulfolane cleanup contributed to the shutdown decision. The state wants Flint Hills to reduce the concentration of sulfolane in the groundwater to 14 parts per billion; the company wants the state to set a less-stringent standard, to around 362 parts per billion about 25 times the level set by the state.
“With that stringent cleanup level, we just can’t risk to operate the refinery anymore,” Cook said.
Ward, the North Pole mayor, says he believes DEC’s stringent cleanup requirement was what finally compelled Flint Hills to shut the refinery.
“I feel that the stringent sulfolane cleanup level of 14 parts per billion may be too much of a burden for the refinery to achieve,” he said.
Ward says the cleanup level is unnecessarily stringent because Flint Hills has been providing drinking water to some 300 homes and businesses in North Pole affected by the contamination.