Nikiski operation boosted by 30 years of investment

Posted: Saturday, April 22, 2000

Tesoro built the Nikiski refinery in 1969, with an initial capacity to process 17,500 barrels of Cook Inlet crude per day.

Nearly 30 years of investment have boosted the refinery's capacity to 72,000 barrels per day, enabled it to process North Slope crude, and added gasoline, jet fuel and asphalt to its product line.

Last year, the refinery processed 18 million barrels of feedstock, including 11.4 million barrels of Cook Inlet crude oil and 5.3 million barrels from other nations, said refinery manager Rod Cason. Its purchases included 596,000 barrels of North Slope crude, and 667,000 barrels of feedstock from other sources.

The refinery's 175 workers produced nearly 6.4 million barrels of jet fuel, sold primarily to airlines at Anchorage International Airport, according to Cason and Ron Noel, Tesoro Alaska Petroleum Co. vice president and general counsel in Anchorage. Total refinery output was 18.3 million barrels, about 50,700 barrels per day.

Noel said the refinery produces roughly 70 percent of the gasoline used in Alaska, and a substantial fraction of the state's diesel and jet fuel. It ships diesel, jet fuel and gasoline through a 10-inch diameter pipeline from the refinery to Anchorage. A branch from the main line carries jet fuel to storage tanks at Anchorage International, where Tesoro has contracts to supply several airlines. A company called Signature dispenses the fuel to the planes, he said.

The pipeline carries gasoline and diesel to storage tanks at Tesoro's two Anchorage terminals, including one bought last year from a Texaco-Shell joint venture. A Tesoro Alaska subsidiary, Tesoro Northstore, operates roughly 31 company-owned service stations and convenience stores. Tesoro also sells fuel through roughly 150 independently owned Tesoro-brand stations, through various distributors, and over its Nikiski dock.

The refinery added a reformer in 1975-76, becoming Alaska's first local producer of gasoline. In 1980, it added a hydrocracker to break heavy fuels into lighter products such as jet fuel and gasoline.

In 1984-85, it added a new crude unit, boosting capacity to 72,000 barrels per day, and enabling it to process North Slope crude.

Tesoro spent roughly $25 million in 1994 to add vacuum distillation equipment to turn heavy fuels into asphalt or break them into products suitable for processing through the hydrocracker. It spent $50 million in 1997 to upgrade its Alaska service stations, and roughly $16.9 million in 1998 to boost output from the hydrocracker to 12,500 barrels per day.

Until recently Alaska's jet fuel production fell about fell about 15,000 barrels per day short of demand, Noel said. Chevron and Texaco imported fuel. However, recent improvements to the Williams Alaska Petroleum refinery at North Pole closed the gap.

Tesoro must import crude in tanker ships, and has spent huge sums to deal with the heavier components of the crude it buys. The Williams refinery draws its crude from the Trans-Alaska Pipeline, and can simply send the heavier components back to the pipe.

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