ANCHORAGE − Flint Hills Resources is gearing up for a $170 million modification project at its refinery at North Pole, near Fairbanks, that will produce ultra-low sulfur gasoline and diesel fuel.

Construction will be underway by late spring 2005 on the project, according to Jeff Cook, Alaska spokesman for Flint Hills.

The new clean fuels are mandated by U.S. Environmental Protection Agency rules. These rules have caused concern among trucking firms and others operating diesel engines that there may be problems getting the fuel in Alaska.

Flint Hills will have refinery modifications in place to meet a January 2007 deadline for making low-sulfur gasoline but getting the facilities to make clean diesel will take longer, Cook said.

Flint Hills committed to manufacturing the clean fuels in Alaska when it purchased the North Pole refinery from Williams Alaska Petroleum Co. in 2003. An important consideration is that Flint Hills will make an Arctic grade of the clean diesel that can be used in the extreme cold temperatures common in Interior and Northern Alaska.

Diesel engine operators in those regions cannot use conventional diesel fuel because it gels in cold temperatures.

The EPA rule regarding gasoline requires a limit of 30 parts per million sulfur content, while the rule affecting diesel will require 15 ppm or less.

The diesel rule actually requires truck engine manufacturers to build 2007 model engines with new-technology pollution-control equipment. The equipment is very sensitive to sulfur, however, and will need diesel fuel with 15 ppm or less sulfur content. Higher levels of sulfur could damage the engines and pollution-control equipment.

Cook said the engineering for the ultra-clean diesel has turned out to be more complex than expected, and it may be late 2007 before the refinery modifications can be completed to produce the clean diesel at North Pole.

Tesoro Alaska Petroleum Co., which owns and operates a refinery at Nikiski, near Kenai, said it will import the fuel so that it is available for customers, but will not manufacture the fuel in the state.

The EPA rule affecting diesel truck engines goes into effect in mid-2006.

There is no information yet on what the clean diesel will cost, other than prices will be higher than current diesel prices because of the special handling and transportation issues involved.

Refineries in the Pacific Northwest have told state of Alaska officials that their costs for making the fuel will be about 5 cents a gallon more than making conventional diesel. However, estimates are that by the time the fuel is transported to Alaska it will cost 25 to 50 cents more than diesel now being sold. Ultra-clean conventional diesel will be made in Pacific Northwest refineries, from where it can be shipped by barge for use in Southeast and parts of Southcentral Alaska which experience milder winters.

However, conventional diesel cannot be used in the Interior or Northern Alaska during the winter.

Flint Hills would not comment on how it will price the Arctic-grade, ultra-clean diesel made in its North Pole refinery, but refining companies often price their products just under the cost of alternatives.

In this case, the only alternative way of getting Arctic-grade, ultra-clean diesel may be trucking it from refineries in Alberta, Canada, which will make the fuel for northern communities in Canada.

Trucking companies have estimated that it will cost 50 cents a gallon to truck the Arctic-grade clean diesel from the Alberta refineries to Fairbanks.

Refineries and fuel transportation companies outside of Alaska are looking at how to handle the new fuels, according to Charles Drevna, executive director of the National Petroleum Refiners Association.

The ultra-low sulfur diesel fuel will pose challenges in fuel storage and transportation, Drevna said. Refineries are gearing up to make the fuel, but transporting and storing it may create problems.

The ultra-clean diesel, from which the sulfur has been removed, has a tendency to reabsorb sulfur if it is stored in tanks or moved through pipelines in which other fuels with a greater sulfur content have been stored or transported, Drevna said.

One U.S. pipeline company which conducted a test shipment of 15 ppm clean diesel through one of its pipelines reported a high degree of contamination of the fuel from residual sulfur in the pipe left from shipments of other fuels, Drevna said.

Source: Knight Ridder/Tribune Business News