Parnell signs deal for Flint Hills refinery

Flint Hills Resources has a guaranteed supply of state royalty oil for its refinery at North Pole, east of Fairbanks in Alaska’s Interior.

Gov. Sean Parnell signed legislation June 11 approving a new contract to supply royalty oil to the refinery. The contract, which is for five years, allows Flint Hills to draw up to 30,000 barrels per day of state oil from the trans-Alaska pipeline system near the refinery.

Parnell signed the bill during a visit to the refinery.

“Extending the state’s contract with the refinery is good for the Interior and good for Alaska,” Parnell said at a signing ceremony. “Many industries across Alaska rely on the fuels that Flint Hills produced, and the extension of this contract will keep Alaska’s economy growing.”

Parnell put his signature to Senate Bill 86, which passed the state Legislature April 9.

The contract provides for a five-year extension, following the initial five-year primary contract term, if Flint Hills agrees to make a major capital investment at the refinery or if the company signs contracts to purchase liquefied natural gas proposed to be trucked from the North Slope, according to Kevin Banks, the state’s commercial manager in the Division of Oil and Gas.

Banks and other officials with the division negotiated the contract extension, which required an approval by the state Legislature.

The LNG trucking plan is a state-backed initiative to supply LNG to new gas distribution facilities in Fairbanks, and having Flint Hills as a major customer for LNG as an energy source for the refinery would help the economics of the overall project.

An alternative is for Flint Hills to invest in new facilities to upgrade the refinery, but Flint Hills spokesman Jeff Cook said his company likely will be participating in the LNG trucking project.

Flint Halls has faced a number of adverse circumstances in recent years that have required the company to scale back fuels production at the refinery.

One was a set of low-sulfur requirements for gasoline and diesel produced by refineries that were economically challenging for Flint Hills to meet. Second, commercial airlines operating through Ted Stevens International Airport in Anchorage, previously major customers for jet fuel for Flint Hills, began large-scale purchases of jet fuel imported from overseas and delivered to the port of Anchorage.

State royalty oil is the major source of crude oil for the Flint Hills refinery, which makes diesel, gasoline and jet fuel mainly for local markets in Alaska’s Interior, including to small rural communities along the Yukon River.

Petro Star Inc. operates a second, smaller refinery also at North Pole, but the company is able to purchase crude oil from producers and is not reliant on state royalty oil.

Under its oil and gas leases the state has the option of taking its one-sixth or one-eighth royalty either in kind, in the form of oil or natural gas, or in value, with cash paid by the producing company.

The state has traditionally sold its royalty oil to Alaska-based refiners as a way of guaranteeing a long-term oil supply.

Tim Bradner is a reporter for the Alaska Journal of Commerce.

 

More in News

Clem Tillion of Halibut Cove poses for a photo on Jan. 9, 2020, in Homer, Alaska. The veteran Alaska legislator was passing through Homer while waiting to take the M/V Tustumena ferry to Kodiak. (Photo by Michael Armstrong/Homer News)
Clem Tillion, PFD founder and former legislator, dies at 96

Tillion died Wedneday, Oct. 13, at Halibut Cove home.

Donna Aderhold recites the Homer City Council oath of office and is sworn in for duty at the city council meeting on Oct. 11. (Photo by Sarah Knapp/Homer News)
New council members sworn into duty Monday

Newly-elected Homer City Council members Shelly Erickson and Jason Davis and re-elected… Continue reading

The Homer City Council met with new council members for the first time Oct. 11. The election results were certified during the meeting and council members Shelly Erickson, Donna Aderhold and Jason Davis were sworn in. (Photo by Sarah Knapp/Homer News)
City of Homer 2020 audit shows clean financial records

The City of Homer received a clean audit for the 2020 fiscal… Continue reading

The Homer Election Canvass Board counted the final Homer City Council election ballots Friday, Oct. 8. (Photo by Sarah Knapp/Homer News)
Election results certified in municipal elections

Aderhold, Erickson, Davis win Homer City Council; Tupper wins Kenai Peninsula Borough Assembly, District 9; Daugharty wins Kenai Peninsula Borough Board of Education, District 8.

Commercial fishing and other boats are moored in the Homer Harbor in this file photo. (Photo by Michael Armstrong/Homer News)
Seawatch: Crabbers look at cuts to quotas

Tanner, opilio crab quotas cut on top of cancellation of fall king crab fishery.

Several members of the Alaksa House of Representatives were absent form a floor session Tuesday, Oct. 12, 2021, but after a quiet first week lawmakers are scheduled to hold committee meetings through the end of the week. (Peter Segall / Juneau Empire)
COVID cases delay Senate

Still slow going.

Most Read