Where Does All That Oil Go?
Andeavor’s Kenai refinery produces gasoline, jet fuel, Ultra Low Sulfur Diesel, propane, and asphalt.
The Last Frontier is far more than a raw resource extraction point for North Slope crude oil, according to a manager of one of the three Alaska in-state oil refineries.
Heading downstream with Alaska-produced oil
“Much of Alaska’s crude oil remains in state and is refined into commercial and residential product used across the state,” says Cameron Hunt, who is the vice president of and manages the Andeavor Kenai Refinery. “The remaining crude oil can be shipped elsewhere, such as refineries and other sources along the West Coast of the United States and around the world.”
Alaska Oil and Gas Association (AOGA) President and CEO Kara Moriarty explains that a variety of products are made from Alaska oil at in-state refineries.
“Our in-state refiners create jet fuel, gasoline, diesel, heating fuel, kerosene, asphalt base oil, marine diesel, turbine fuel, ultra-low sulfur diesel, JP-8, and JP-5,” she says. “All of the products created by our refineries are essential to Alaskans. The products heat homes, motorize cars, fly planes, operate boats, support the military, and are key in road construction.”
Before crude oil even begins the transformative process of becoming the fuel that runs the nation’s economy and the products that its citizens often take for granted, it undergoes a long journey: in Alaska, that’s at least 800 miles.
Since the discovery of black gold on the North Slope, oil extraction companies have removed more than 12.5 billion barrels from the Prudhoe Bay oil field alone. Prudhoe Bay, discovered in 1968 by Richfield (ARCO) and Humble Oil (ExxonMobil) and confirmed by BP in 1969, is the largest oil field in North America. It is now operated by BP, which partners with ExxonMobil and ConocoPhillips Alaska. The working interest owners include BP, ConocoPhillips, ExxonMobil, and Chevron.
“It has funded up to 90 percent of the state’s unrestricted General Fund revenues in most years and has accounted for over $180 billion in total revenue since statehood. Even at today’s low oil prices, oil revenues account for approximately 67 percent of unrestricted General Fund revenues in FY 2017,” according to the Alaska Resource Development Council, a nonprofit, membership-funded organization of individuals and companies from the state’s oil and gas, mining, timber, tourism, and fisheries industries.
Once extracted, the crude oil begins an 800-mile journey from Prudhoe Bay down the Trans Alaska Pipeline System (TAPS) to the northernmost ice-free port in North America in Valdez.
TAPS was constructed and continues to be operated by Alyeska Pipeline Service Company, a consortium comprised of BP Pipelines (Alaska), ConocoPhillips Transportation Alaska, ExxonMobil Pipeline Company, and Unocal Pipeline Company.
Built in 1977, TAPS hit peak flow eleven years later, when eleven pump stations moved 2.1 million barrels of oil daily. In 2016, an average of 517,868 barrels was moved through the pipeline daily, marking the first increase in TAPS throughput since 2002. Throughput increased again in 2017 to 527,323 barrels a day, according to Alyeska.
Even with the increase, TAPS is still operating at only one-third of its capacity, having seen a 39 percent decline in the past ten years, according to AOGA.
The recent trend of increasing flow down the pipeline is expected to continue with ConocoPhillips marking its best exploration season in more than a decade. In the next five years, ConocoPhillips is on track to add 100,000 barrels a day to the system, about an 18 percent increase.
Alaska refineries are part of a broader market that includes West Coast and Asian refineries, according to a 2016 AOGA report. And even the recent uptick in flow will not be enough to fulfill the needs of refiners in that market. That difference for refineries in Alaska is made up with crude oil purchased on the world market.
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Refineries in Alaska
Andeavor’s Kenai refinery is configured to process Alaska crude oil as well as specific foreign or Lower 48 crude oil types.
In addition to the Andeavor refinery in Kenai, Petro Star operates the other two of three refineries in the state, one in North Pole and the other in Valdez. All three are relatively small compared to the typical West Coast refinery, according to AOGA, with Andeavor processing less than 100,000 barrels a day and the combined work of Petro Star’s refineries amounting to less than that.
Despite their relatively small size, refineries in Alaska add value and provide jobs.
“Alaska crude oil is transferred from production sites to refineries by pipelines, ships, and trucks. The location of the production site relative to the refinery determines that mode of transportation,” Hunt says.
Once at the refinery, the crude oil is transformed.
“There are multiple steps in the refining process. Most importantly, we always work to ensure safe, reliable, and efficient operations and to always comply with environmental and safety regulations,” Hunt says. “The process begins with heating crude and distilling into different fractions, some of which are finished products.”
A forty-two-gallon barrel of crude oil yields about forty-five gallons of petroleum products due to the refinery processing gain, explains the US Energy Information Administration. The products made from a 2017 barrel of crude would break down to about twenty gallons of gasoline, two gallons of hydrocarbon gas liquids, one gallon of heavy fuel oil, four gallons of jet fuel, eleven gallons of ultra-low sulfur distillate, six gallons of other products, and less than one gallon of other distillates (heating oil).
“We then remove sulfur and other containments from those fractions by hydrotreating, filtering, washing, and/or separating. We can also further modify fractions by breaking molecules apart [hydrocracking] or by rearranging or combining molecules [reforming and isomerization]. The final step is to blend components to meet government specifications and test those at our onsite lab,” Hunt says.
Because not all crude oil is the same—there are differences in quality and composition depending on the oil field it comes from, and this can even change with time—not all refineries are set up in the exact same way.
For example, crude oil can be classified as “light” or “heavy.”
Oil is comprised of an enormous amount of tiny plants and animals, such as zooplankton and algae, which over millions of years were exposed to pressure and heat; the amount of pressure and heat determines how light the oil is. The more heat, the lighter the oil, and this has an impact on what refinery can process it.
“Refineries are generally configured to run different types of crude quality,” Hunt says. “Our Kenai refinery is configured to process Alaska crude, as well as some specific foreign or Lower 48 crude types. We are configured primarily to produce clean gasoline to supply the Alaska market, maximize jet fuel for Ted Stevens Anchorage International Airport, and produce Ultra Low Sulfur Diesel. We also produce propane and asphalt for the local market.”
Different chemical engineering processes are used to create different products, Hunt explains.
The process of crude distillation is used to make gas blending components, as well as jet fuel and marine gas oil, while hydrocracking takes gas oil and produces jet fuel, gas blending components, and LPG. Another process, diesel desulfurization, is used to create Ultra Low Sulfur Diesel (#1 and #2), while vacuum distillation produces asphalt and gas oils.
Alaska Oil in Other US Refineries
US refineries included in the same broad market as Alaska—and that process Alaska crude—can be found in Hawaii, California, and Washington. There are two refineries in Hawaii, twelve in California, and five in Puget Sound, Washington.
A major out-of-state refinery handling Alaska crude is BP’s Cherry Point, in Blaine, Washington. The facility first opened in 1971 with the primary purpose of refining crude oil brought by tanker ships departing Valdez North Slope oil.
“Since then, the refinery has diversified its capabilities, and today it accepts and refines crude oil from around the world. Its close proximity to rail, shipping, and pipeline infrastructure helps Cherry Point move its products swiftly to market,” BP explains.
About 90 percent of the about 236,000 barrels of crude oil the Cherry Point facility processes each day ends up as transportation fuel. The refinery provides the majority of jet fuel used at international airports in Seattle; Portland, Oregon; and Vancouver, British Columbia.
The remaining 10 percent is converted into anode-grade calcined coke, which is then sold to aluminum smelters worldwide. The production of aluminum requires up to half a ton of carbon, specifically anode-grade calcined coke, for every ton of the versatile metal produced.
In addition to the Cherry Point facility, BP has US-based refineries in Whiting, Indiana, and Toledo, Ohio.
“They produce a wide range of fuels, petrochemicals, and lubricants to serve America’s highway, air, and rail transportation needs; for home, commercial, and institutional heating; and for power generation and use by industry,” BP says.
The refined products are sold under the brands of BP, Amoco Ultimate, and Castrol.
“BP’s US refining strategy focuses on operating sophisticated, feedstock-advantaged refineries tied to strong logistics, and fuels infrastructure. BP has completed a number of major investments in its US facilities to increase production and boost efficiency,” the company says.
Another refinery operating in Puget Sound that turns Alaska crude into fuel is Phillips 66’s Ferndale Refinery, which houses a fluid catalytic cracker, an alkylation unit, hydrotreating units, and a naphtha reformer.
Like Alaska refineries, Ferndale Refinery mostly produces gasoline and diesel. These products are then distributed by pipeline and barge to US markets in the northwest.
Another Andeavor refinery putting Alaska crude oil to work is the Los Angeles Refinery, near Port of Long Beach. It’s designed to process heavy crude from California’s San Joaquin Valley and Los Angeles Basin, as well as crudes from the North Slope and international sources.
There is a reason why so many US refineries focus on the production of gasoline and distillate fuel oil (diesel fuel and heating oil): they’re the two most consumed petroleum products in the nation.
“In 2016, motor gasoline consumption averaged about 9.3 million barrels per day (391 million gallons per day), the largest amount recorded and equal to about 47 percent of total US petroleum consumption,” the EIA reports. In 2016, distillate fuel oil consumption comprised about 20 percent of the total US petroleum consumption.
Back in state, where value added at the refineries trickles into the communities, Andeavor stands by its commitment to the Last Frontier.
“For more than forty-nine years, Andeavor has been committed to utilizing Alaska crude—and refining it in state—to produce the fuels that consumers within the state need to keep their lives moving,” Hunt says. “We rely upon our uniquely-talented team members and contractors, some of whom are multi-generational employees, to meet that challenge 24 hours a day, 365 days a year. Our team holds a steadfast dedication to operating safely, reliably, and in an environmentally sensitive manner. Andeavor is committed to Alaska, to our employees, and to the communities in which we operate.”
In This Issue
Distinguishing Differences in Financial Institutions
There are thousands of financial institutions in Alaska, providing everything from checking and savings accounts to loans and investment solutions. Banks and credit unions are among the most prominent financial services companies serving Alaskans.