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Wanted: Cook Inlet crude

New production would boost Tesoro refinery

Posted: Wednesday, February 20, 2008


  Tom Brook prepares to test jet fuel in the lab at Tesoro's Nikiski refinery earlier this month. An industry support group heard from Tesoro on Tuesday. Photo by M. Scott Moon

Tom Brook prepares to test jet fuel in the lab at Tesoro's Nikiski refinery earlier this month. An industry support group heard from Tesoro on Tuesday.

Photo by M. Scott Moon

A spokesman for Tesoro told industry support company leaders the petroleum refiner and marketer is dependent on them, and would love to see more Alaska crude oil available for processing.

"Three take away points today are Tesoro relies heavily on a healthy and vibrant support industry on the Kenai Peninsula, two, Tesoro would love to buy more Alaska crude oil and three, we want a stable natural gas supply," said Kip Knudson, speaking to members of the Alliance in Kenai.

Knudson said Tesoro, which has been operating its fuels refinery in Nikiski for nearly 40 years, processes nearly all the crude oil coming out of Cook Inlet and the Swanson River field, and buys 30,000 barrels of crude oil a day from independent producers through the oil terminal in Valdez.

Oil being refined in Nikiski can come from as far away as Indonesia and Australia as well as Argentina, Knudson said.

"We're buying all the Alaska crude we can," he said.

When the refinery first opened in 1969, it had a design capacity of 17,500 barrels per day, but a 1985 upgrade of its crude oil unit increased capacity to 72,000 barrels per day.

Other major processing units at the plant, which employs 225 people, include a naphtha reformer, a hydrocracker, an isomerization unit, a vacuum distillation unit, a cogeneration unit and the newly installed diesel desulfurization unit put on stream last year to produce ultra-low sulfur diesel fuels.

The cogeneration unit produces some of the refinery's electricity and steam.

"When all the bills are in, the cost of the ultra-low sulfur diesel unit will be $60 or $65 million," Knudson said. Diesel engines manufactured in 2007 or later will require the new low-sulfur fuel.

In addition to refining, Tesoro operates 32 convenience stores, 29 of which sell fuels, according to Knudson, plus 67 Tesoro-branded retail outlets the company refers to as "mom-and-pops."

Besides the refinery, the company operates a storage terminal in Nikiski that can store up to 213,000 barrels, a tanker loading wharf that has a 35-foot draft and a 10-inch, 70-mile-long products pipeline to transport fuels to Anchorage.

Other than gasoline and diesel fuel, the refinery makes propane, jet fuel, bunker fuel and road asphalt.

Knudson said one-third of every barrel produced is not marketable in Alaska. Bottom distillates, such as vacuum gas oil and fuel oils go Outside to other refineries to process, or some go into ocean tankers for use as fuel.

Among impediments faced by the refiner are crude oil and natural gas availability plus the rising operating costs for utilities, meeting spill response requirements, foreign crude oil prices and oil bottoms distribution.

When asked for a best-case scenario for the company, Knudson said, "For Tesoro, it's for somebody to drill and find more oil in Cook Inlet."

Phil Hermanek can be reached at


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