June 20, 2012:

Flint Hills Resources will have its North Pole refinery crude oil processing unit No. 1 shut down Aug. 1, about a month earlier than the company had said. The closure will leave the refinery’s crude processing unit No. 2 still operating. The refinery’s crude processing unit No. 3 was shut down in 2010. The plant at North Pole is near Fairbanks. Flint Hills takes crude oil from the nearby Trans-Alaska Pipeline System to manufacture fuel products. Flint Hills spokesman Jeff Cook would not provide estimate of the production capability of the remaining unit but said that it is capable of manufacturing gasoline, diesel, asphalt and jet fuel for Flint Hill’s current customers as well as a naphtha that is used for power generation by Golden Valley Electric Association, the Interior Alaska regional electric cooperative.

Meanwhile, the company is working to find jobs for employees affected by the shutdown of the unit, Cook said. “This will affect about 37 to 38 of our employees but fortunately we have been able to place many of these people with other refineries and facilities operated by our parent company, Koch Industries,” Cook said. The company now employs about 170 between the refinery and a bulk fuel storage and distribution center in Anchorage, he said. Fairbanks community leaders are concerned that Flint Hills’ action to move skilled employees to other plants is a signal that the company sees no possibility of restarting the unit in the near future, nor a third processing unit at the refinery that was shut down in 2010. Jim Dodson, president of the Fairbanks Economic Development Corp., said his organization is focused on helping the refinery alleviate problems that affect its profitability, mainly a less expensive source of energy for refinery operations than the crude oil Flint Hills must now burn.

The company is now in a joint study with Golden Valley of a plan to truck liquefied natural gas from the North Slope to Fairbanks. The LNG would be regasified to power the refinery, removing the need to burn costly oil. Fairbanks leaders are also pressing the state of Alaska to offer Flint Hills better terms on its state royalty oil contract when the contract is renewed in 2014, Dodson said. The refinery is now totally dependent on the state for a supply of crude oil, and the state charges Flint Hills a premium for royalty crude on top of the value the state receives from producers who pay the state royalty in cash. “It makes absolute zero sense for the state to charge Flint Hills a bonus on the royalty oil,” Dodson said. “Our state should be focused on helping our industries and retaining jobs rather than maximizing revenue to the treasury,” particularly when Alaska is running billion-dollar revenues surpluses at current oil prices.

The Flint Hills cutback in August will further reduce shipments of fuel from Fairbanks to Anchorage on the state-owned Alaska Railroad Corp. Bill O’Leary, the railroad’s vice president of finance, said fuel shipments have been reduced by half since Flint Hills operated all three of its crude units and shipped gasoline and jet fuel to Anchorage. Officials at Ted Stevens International Airport in Anchorage said fuel suppliers bringing jet fuel from overseas have been able to replace the jet fuel made by Flint Hills, although a Tesoro Corp. refinery in Kenai, south of Anchorage, also supplies some jet fuel. Anchorage’s airport is a major refueling point for air cargo operators flying between North America and Asia. About 800 million to 1 billion gallons of jet fuel is purchased annually by air carriers in Anchorage.

By Alaska Journal of Commerce

June 20, 2012:

Facility will increase jobs and decrease groundwater contamination threat while helping the nation become energy independent.  Renewable Manufacturing Gateway (RMG), a non-profit organization acting as the catalyst for regional job creation and economic development in the clean technology and renewable energy industries, has signed a Letter of Engagement with Mil Speck Re-Refining Oil Company LLC (Mil Speck) to jointly develop a motor oil re-refinery. Mil Speck will recycle used motor oil in an environmentally friendly manner in a new custom-designed plant that is expected to start operations in the fourth quarter of 2013. “Oil gets dirty, but it never wears out,” says Mil Speck’s founder and Chief Executive Officer Carl Greene.

The new re-refinery will have a capacity to process 25 million gallons of used motor oil per year and to produce vacuum gas oil, base neutral and asphalt flux. Mil Speck will utilize a state-of-the-art technology designed by Sequoia Global Inc. The technology has a proven industry record of producing the highest product quality and yielding the greatest economic return for re-refiners of motor oil.  Mr. Greene is an honorable US Navy veteran with more than 25 years of experience in the petro-chemical industry, particularly in recycling and applications of used motor oil. According to Mr. Greene, “There is a great opportunity in the mid-Atlantic region to establish a motor oil recycling business because of availability of feedstock, proximity to recycled product off-takers and lack of competing re-refineries. I am thrilled to be partnering with RMG to help take this facility from dream to reality.”   

As a regional business development force, RMG will provide to Mil Speck advice related to business strategy, finance structuring, financial modeling, contract structuring and negotiating as well as capital sourcing. Steven Adelkoff, President of RMG, said “Mil Speck is an excellent example of a company that will become a great employer in our region. With Carl Greene’s superior industry knowledge and leadership, together we will be building an environmentally friendly business in a profitable industry that will create good-paying jobs in economically blighted areas of our region.”  Mil Speck Re-Refining Oil Company (Mil Speck) is in the business of developing a used motor oil re-refining project as well as owning and operating a used motor oil re-refining company using environmentally friendly technology for distillation and hydro-treating of used motor oil back to basic oil.

Renewable Manufacturing Gateway (RMG) is a Pittsburgh-based non-profit organization whose mission is regional job creation in the clean technology, renewable and alternative energy industries. RMG advises companies in these industries with respect to project development, finance, capital markets strategies and introductions, business planning, commercialization, marketing, sales and strategic growth. For more information please visit http://www.renewmfg.org or contact Director of Development, Ieva Abolina iabolina(at)renewmfg(dot)org, phone (412) 567-1491.

By Chron.com

June 20, 2012:

HOUSTON, June 19 (Reuters) - Motiva faces deepening woes at its Texas refinery with sources saying on Tuesday that a new crude unit at the heart of its $10 billion expansion project may be shut for up to a year because of extensive corrosion, more than twice as long as initially expected. Estimates for the restart of the Port Arthur, Texas, refinery's crude distillation unit (CDU), which was idled just nine days after it was officially commissioned, have escalated from two months to five months to a full year since it was shuttered by a fire on June 9. While fire damage was negligible, extensive corrosion has been found in vessels and piping of the CDU, said sources familiar with the refinery. Corrosion can lead to the catastrophic failures of refinery units to contain hydrocarbon liquid and vapor under high pressure and heat.

For Motiva, a joint venture of Royal Dutch Shell Plc and Saudi Aramco, the 325,000 barrel-per-day unit is the centerpiece of 5-year expansion that made the refinery the nation's largest at 600,000 bpd. The crude unit began refining crude oil in late April and stopped production after a leak developed in early June. The sources said Motiva has yet to make a final determination of the cause of the corrosion in the 325,000 bpd crude distillation unit and the scope of work needed to repair it. Motiva has declined to say if corrosion has been found in the unit. "At this point, we don't know how long the crude unit will be down," said Motiva spokeswoman Emily Oberton. "An investigation is continuing to determine the cause of the issue."

The outage has not caused a shutdown of the entire refinery and another 285,000 bpd crude distillation unit (CDU), which performs the initial refining of crude oil coming into the refinery and provides feedstock for all other production, continues to operate.

COSTLY PROBLEM

The problems have been costly for the Motiva partners. Based on margins for running international benchmark Brent crude through a Gulf Coast refinery, the plant would have lost about $1.54 million per day, based on Reuters calculations. Losses could be even higher as the Motiva plant was designed to run cheaper, heavier sour crude, including oil from Saudi Arabia. Heavy, sour crude is more corrosive due to a higher sulfur content and refinery units designed to run those crude grades are supposed to withstand the corrosion for years. While it is not unusual for new refinery units to experience operational teething pains when they first begin operating, a shutdown lasting months would be a major embarrassment for Motiva and its owners after the landmark $10 billion upgrade.

The outage may also complicate Saudi Arabia's drive to push more crude into the U.S. market, as the Port Arthur plant was one of the biggest new outlets for increased production. Oberton said some of the Saudi crude was being utilized at the refinery in the units that were still online, but declined to say which of the other new units run crude. In addition to the crude unit, a new delayed coking unit, which  ocesses residual crude oil, was built. "Other units are operating, including some of the expansion units," she said. "We're working to optimize production without the crude unit," said Oberton, without giving details on how many barrels the refinery was currently processing. Other units built in the expansion were designed to receive intermediate feedstocks from the new crude unit.

Saudi Arabia pushed oil production to the highest level in decades in May, in part to build up storage levels at the Motiva plant as well as to cushion the impact of Western sanctions against Iran's nuclear program, which have threatened Tehran's exports. U.S. imports from Saudi Arabia jumped to 1.45 million barrels during the first five months of 2012, according to Reuters calculations based on monthly and weekly data from the U.S. Energy Information Administration, the highest level for that period since 2008.

By Reuters

June 20, 2012:

FERNDALE, Wash. -- BP says the Feb. 17 fire that shut down its Cherry Point oil refinery in Washington state near Ferndale was caused by a pipe failure in the crude processing unit. Refinery Manager Stacey McDaniel says the pipe has been replaced and is being monitored while a redesign is considered. BP added a maintenance "turnaround" to the repairs, which at one time required more than 3,200 additional workers at the site. The refinery returned to operation at the end of May. Its outage had been blamed as a factor in high West Coast gasoline prices. Cherry Point is the third-largest refinery on the West Coast and produces 20 percent of Washington's gasoline and the majority of jet fuel for Sea-Tac, Portland and Vancouver, British Columbia, airports.

By The Associated Press

June 20, 2012:

Fitch Ratings has upgraded OAO Tatneft's (Tatneft) Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BB'. The Outlook on the Long-Term IDR is Stable. Fitch has also affirmed the Short-Term IDR at 'B'. The rating upgrade reflects progress in construction of the Taneco refinery, relatively conservative capex spending plans post-2012 and the expected gradual deleveraging. Taneco refinery commenced commercial operations in December 2011. Further development of the Taneco refinery includes mainly construction of the hydrocracker unit (expected completion in 2013) and an increase in the refining depth. Fitch considers the reduced completion risk and the addition of the refining capacity (especially following further investment to increase its complexity) as positive changes to Tatneft's business profile. Fitch expects that the planned capex spending for Taneco development between 2012 and 2014 will be internally financed and will significantly decrease post-2012 compared to levels noted between 2009 and 2012.

Fitch understands that Tatneft put on hold its earlier plans to double Taneco's capacity mainly due to the tax changes introduced in the Russian Federation ('BBB'/Stable) on 1 October 2011 (the so called '60-66' tax regime). Lower resulting capex spending and, therefore, respective expected leverage, are likely to support Tatneft's credit metrics. Tatneft's FFO gross adjusted leverage in fiscal year 2011 (FY11) decreased to 1.1 times (x) from 1.5x in FY10, and Fitch expects further deleveraging over 2012-2015.Under Fitch's base case scenario using a relatively conservative oil price deck of USD95/bbl in 2012, the company would likely need to refinance part of the upcoming debt maturities. Nevertheless, Fitch believes that the resulting leverage levels would still compare well with the company's Russian peers and support the rating upgrade to 'BB+'. The agency notes that Tatneft's ratings are constrained by its smaller scale of operations compared with the major Russian oil and gas producers, its mature oil reserves with a high sulphur content, and by relatively high lifting costs. As a result of these factors, Tatneft's earnings per barrel are lower compared with most of its Russian peers. This is partially mitigated by the long estimated hydrocarbon reserves life of over 33 years, which is higher than for Fitch-rated Russian oil companies.

Fitch views the headroom for a further rating upgrade in the medium term as limited. Rating downgrade may follow if the FFO gross adjusted leverage is consistently above 2x, while the FFO coverage ratio is below 10x. Liquidity at end-March 2012 was adequate with a short-term loan balance of RUB35.7bn against an unrestricted cash balance of RUB28.1bn. Fitch assumes Tatneft will be able to refinance part of maturities falling due until end-March 2013 and expects a positive free cash flow in 2012..

By Reuters