The Tesoro Corporation petroleum company will need to sell or lease a terminal at the Port of Anchorage, following a June 21 agreement between the company and the Alaska Attorney General.

The agreement, reached by then-Attorney General Craig Richards (who resigned June 23) after a six-month investigation is meant to “mitigate the anti-competitive effects… alleged by the State” of Tesoro’s purchase of another terminal from competitor Flint Hills Resources, giving it most of the port’s capacity to import commercial gasoline.

Tesoro’s Kenai refinery is the only active commercial gasoline refinery in Alaska — the other, Flint Hills’ North Pole refinery, converted to a storage facility in 2014. Two other refineries owned by Petro Star specialize in jet fuel, while other refineries dedicate their production to use by North Slope companies rather than consumers.

Tesoro’s purchase of Flint Hills’ Anchorage port terminal — which follows its purchase of Flint Hills’ fuel import terminal at the Fairbanks airport — would “impair competition in markets for some fuel products, including gasoline,” according to a press release announcing the agreement.

“If we did nothing, (Tesoro) would have pretty much all of the available storage that’s been historically used to compete for the sale of products,” said Chief Assistant Attorney General Clyde “Ed” Sniffen. “Crowley (Petroleum Distribution) has a terminal there (in the Anchorage port), but they use almost their entire capacity to service JBER (Joint Base Elmendorf-Richardson, Anchorage’s Army-Airforce base). The airport fuel consortium has a tank farm there that’s really large, too, but they use that for jet fuel to service the airport. So the only real two competing tank farms there were the Flint Hills farm and the Tesoro farm. Tesoro had the refinery as well, so if we let them have all the capacity, they would basically prevent anyone from buying fuel to compete with them… We wanted to require Tesoro to divest enough capacity that it would allow a competitor to at least provide the ability to import gasoline if they need to.”

A February 2016 study of Alaska’s refining industry by consultants Econ One for the Alaska Senate Finance Committee found that importing is increasingly important for the Alaskan gasoline market. Alaska become a net importer of gasoline in 2009, and imported 22 percent of its gasoline in 2013, according to the study.

In the absence of other in-state gasoline refineries, Sniffen said, “If you wanted to do something to leverage a price against Tesoro, the only way you’re going to be able to do that is to provide an import option.”

“The only way you’re going to get an import option is if you have enough capacity to bring in a barge or a tanker of fuel,” Sniffen said. “The only way to do that is to have storage. So somebody who takes over (the terminal) would have that capability if they wanted to… What we’re trying to do is just preserve the existing competition in the marketplace. If you’re going to buy up your competitor, we look to see what that competitor’s competitive influence was. (Flint Hills) had the option to import fuel, so we wanted to be sure that someone else had that same option.”

The terminal that must be sold — referred to in the consent decree as Terminal One — is the smallest of the three Tesoro currently has, with a capacity of 220,000 barrels. The former Flint Hills terminal holds 580,000 barrels and includes a rail-loading facility allowing Tesoro to send gasoline north to Fairbanks via train. The third terminal holds 600,000 barrels.

Tesoro’s 69-mile pipeline from the Kenai refinery to the Anchorage port has a receiving station at Terminal One, which Tesoro spokesperson Kate Blair said will not be included in the sale.

“The pipeline receiving station is on its own piece of land,” Blair said. “… All of our operations will stay status quo. Because those pieces aren’t part of Terminal One and aren’t part of what’s being divested, there will be no interruption (in pipeline operation).”

The consent decree lists nine companies as “actual or potential competitors of Tesoro” who would be qualified to buy the terminal. These include Petro Star, Crowley, Chevron, and Shell Oil.

“It’s not an exclusive list,” Sniffen said of the companies named in the decree. “We tried to identify some of the more obvious competitors in the market who actually import fuel into the area or who sell fuel into the area, just to remove any doubt that these people would be qualified… We put as many people on the list as we know of that are in the market. But anybody can qualify who meets (Department of Environmental Conservation) standards and is credit-worthy.”

The terminal must be sold within a year, and the Attorney General’s office will need to approve the sale.

Although Sniffen acknowledged that a buyer might use the terminal for aviation or marine fuel rather than competing with Tesoro’s commercial gasoline imports, he said the focus of the approval would be on a company wiling to enter the gasoline market and “provide the same kind of competition Flint Hills was providing.”

If no buyer makes an offer for the terminal, the agreement allows Tesoro to lease it. If Tesoro can’t find a lessee, either, it can allow another company to use the terminal for a fee.

The decree must be approved by the Alaska Superior Court after a 60 day public comment period.

State Senator Bill Wielechowski (D-Anchorage) has previously called for an investigation into the Flint Hills terminal sale, as well as a general investigation into fuel pricing.

Sniffen said the investigation behind last week’s agreement began before Wielchowski’s request.

Reach Ben Boettger at ben.boettger@peninsulaclarion.com.