By Jenny Neyman
Any time the price at the pump takes a hike skyward, the decibel level of motorists’ grumbling tends to trend upward, as well, as consumers pay a penny or more increase for each gallon they slosh into their tanks.
Oil-refining companies like Tesoro Corp., occasionally the target of some of that grumbling, aren’t as unsympathetic to being subject to uncontrollable hikes in costs as motorists may think.
Drivers might find their gasoline or diesel bill fives or tens of dollars more costly, depending on fuel prices. About three years ago, Tesoro’s refinery in Nikiski found it $45 million more expensive to refine diesel fuel. And, due to new regulations going into effect Jan. 1, 2011, it became $70 million more expensive to produce gasoline, with more costs yet to come as the refinery finishes another phase of upgrades.
“That’s just to remain in the gasoline business,” said Kip Knudson, manager of external affairs for Tesoro Alaska.
“A lot of people in Alaska are just completely befuddled when I say this, but the refining sector has been in exceptional doldrums since 2008. Capital money is extremely tight. All you have to do is look up our stock ticker on a stock-tracking mechanism, TSO. The stock price will give you an indication of how well we’re doing. We haven’t been doing well,” Knudson said.
Regulations from the Environmental Protection Agency have necessitated expensive upgrades at the facility so it can produce fuels that meet stricter requirements limiting harmful toxins in fuel. In 2007, Tesoro Alaska estimated spending $45 million to install a Distillation Desulfurization Unit to produce ultralow-sulfur diesel to be in line with EPA regulations that started phasing into effect that year.
In February 2007, EPA regulations were passed that require a reduction in the amount of cancer-causing benzene in gasoline, with the first lower benchmark going into effect in 2011. By Jan. 1, refining companies must produce gasoline with no more than 0.62 percent benzene as a companywide average, meaning one refinery may produce gasoline that’s over the 0.62 percent cap, as long as the gasoline output of the company from all its refineries averages out to be under the new limit. In 2013 the next benchmark goes into effect, requiring all individual refineries to produce gas with no more than 1.3 percent benzene.
Benzene occurs naturally in crude oil and is increased through the refining process to boost gasoline’s octane level. Among air pollutants, benzene poses the second-biggest cancer risk to Americans, after diesel emissions, according to the EPA.
The stricter diesel sulfur dioxide and benzene in gasoline restrictions are meant to benefit health and safety through reducing exposure to cancer-causing toxins. Those benefits come at a cost to the financial health of refineries like Tesoro.
“EPA has regulated the sulfur dioxide emissions coming off automotive and other vehicles and they’ve looked at benzene content. So these benefit the health and safety of our citizens. But in terms of its economic benefit, it’s a cost just to stay in business,” said Vern Miller, manager of technical services at the Kenai Tesoro Alaska refinery. Continue reading