The refinery in Nikiski that turns Cook Inlet’s oil output into gasoline, jet fuel, diesel and propane won’t be immediately affected by the expansion and re-naming of its San Antonio, Texas-based parent company. That company — known as Tesoro since building the Kenai Refinery in 1969 and known since August as Andeavor, after it acquired oil refiner and marketer Western Refining in a $4.1 billion deal that closed June 1 — expanded from 7,500 nationwide employees to 13,000 with the deal, the largest acquisition in its history.
Cameron Hunt, Vice President of Andeavor’s Kenai Refinery, spoke to the members of the Soldotna and Kenai Chambers of Commerce on Wednesday about the new brand. For the refinery and its 225 employees, he said, not much has changed since its scheduled pause for upgrades and maintenance in spring 2016.
“But a lot has changed with our company, obviously,” he said.
In 1969, oil companies in Cook Inlet produced an average 191,700 barrels a day, according to the Alaska Department of Revenue. Tesoro began refining about 17,500 daily barrels of that output in Nikiski that year. At the time, the refinery had 17 employees, Hunt said.
“The wellspring of the company’s success was here in Kenai,” Hunt said. “We were the only refinery in the company.”
The nine other refineries Andeavor presently owns have all been acquired from other companies. Tesoro made its first acquisition in Hawaii in 1998, a 94,000-barrel per day refinery it sold in 2013. Others the company bought as Tesoro include refineries in Anacortes, Washington; Salt Lake City, Utah; Mandan, North Dakota; and Los Angeles, California.
With the Western Refining acquisition, Andeavor gained three refineries located in El Paso, Texas; Gallup, New Mexico; and St. Paul, Minnesota, as well as more than 3,000 nationwide gas stations and convenience stores. Its post-acquisition nationwide refining capacity of about 1.2 million barrels per day gives it about 6 percent of U.S refining capacity and makes it the fourth-largest U.S refiner, according to Bloomberg business news.
In Cook Inlet, the Kenai Refinery’s 72,000 barrels per day of capacity consumes all of the region’s daily oil output of about 14,900 barrels. The refinery’s remaining supply need is filled with North Slope oil. Although about three quarters of the crude refined in Nikiski is from the North Slope, Hunt said “having locally sourced crude is incredibly important to the success of the refinery.” Cook Inlet crude oil has a lower sulphur content than the crude presently being produced from the North Slope, making it “sweeter” in petroleum engineering terms and more suitable for the refinery’s processes, which were originally designed almost a decade before oil began flowing from the North Slope.
The Kenai Refinery turns that crude into propane, gasoline, jet fuel, and diesel, 100 percent of which is consumed in Alaska, Hunt said. Other products that are exported include fuel oil and vacuum gas oil — which Hunt said are used in other industrial processes for which there’s no market in Alaska — as well as road asphalt.
In 2012 – when Cook Inlet was averaging 10,700 barrels per day — the Petroleum News reported that Tesoro was replacing the Alaska North Slope crude supply at its 120,000 barrel-per-day refinery in Anacortes, Washington with lower-cost, higher-grade crude shipped by rail from the Bakken oil field in the Lower 48, and claimed the company was also having internal discussions about using imported Bakken crude to feed the Kenai Refinery in place of declining Cook Inlet oil. Though Cook Inlet’s production has since risen, Hunt said importing crude to the Kenai Refinery remains a possible, albeit undesirable, future course.
“As crude production falls off, what that will force us into is bringing in crude from Outside,” Hunt said. “That’s not what we want to do. We don’t want to pay for those transportation costs, and it hurts our business. We really pride ourselves on being an Alaskan refinery run by Alaskans and running Alaska crude for the Alaska market.”
Charitable giving
The Tesoro Foundation — the philanthropic organization that Tesoro launched in October 2014, focused on public safety, environmental conservation, and science, technology, engineering, and math education — is continuing as the Andeavor Foundation, and Hunt said it plans to increase local giving in the coming years. The Foundation gave $500,000 in 2016, and is planning to make that number $750,000 by the end of 2017, Hunt said. Local recipients of this money include the Challenger Learning Center, Caring for the Kenai, the Kenai Peninsula Borough’s 911 Operation Center, the Kenai Boys and Girls Club, and the Alaska Sea Life Center.
Reach Ben Boettger at benjamin.boettger@peninsulaclarion.com.
