Monday, November 24th, 2014

Did the Koch brothers run an Alaskan oil refinery into the ground?

Sen. Mark Begich, D-Alaska, released a campaign ad attacking the Koch brothers.

Sen. Mark Begich, D-Alaska, is hitting back against billionaire conservatives David and Charles Koch. Their group Americans for Prosperity has spent millions on TV ad buys in the state so far, but Begich is buying airtime as well.

Begich’s March 10 ad attacks the Kochs’ impact on the Alaskan economy.

A different Alaskan worker utters each phrase: "They come into our town, buy our refinery, just running it into the ground, leaving a mess. A lot of Alaskans are losing jobs, and I’m definitely concerned about the drinking water."

A text overlay reads, "Laid off almost 100 workers."

PolitiFact wanted to take a closer look at what happened to the Flint Hills Resources refinery in North Pole, Alaska. Is it accurate to say the Koch brothers ran it into the ground?

The Koch Industries company Flint Hills Resources purchased the refinery in July 2004. There, workers handled up to 226,500 barrels of crude oil each day, turning it into products like gasoline, jet fuel, heating oil, gasoil and asphalt.

On Feb. 4, Flint Hills announced it would close the refinery by June and convert the facility into an oil shipping and storage terminal. They’ll keep 35 people on the payroll to supervise the terminal’s operations, in addition to moving 10 employees to their Anchorage terminal. In all, they’re laying off about 80 employees, Anchorage Daily News reports.

The main factors in the refinery’s closure were high operating costs, crude oil costs and a chemical spill on the grounds, the company said.

It’s the chemical spill that makes it hard to know what really happened at the refinery. Flint Hills blames the previous owner and has taken them to court over it. Because of the litigation and uncertainties surrounding the spill, we won’t rate this on our Truth-O-Meter.

The cost of refining in Alaska

But we can still take a look at the facts of the closure, starting with high expenses Flint Resources noted.

Saying crude oil is pricy doesn’t reflect the entire U.S. oil refining industry right now, said Tom Kloza, Oil Price Information Service founder. But in Alaska, refineries do face high costs when purchasing crude oil. In fact, Gov. Sean Parnell, R-Alaska, wants to give tax breaks to keep area refineries in business.

Refineries in the Gulf Coast and mid-continent typically pay less per barrel of oil than the global futures quote. West Coast refineries, on the other hand, pay much more. Since 2012, refineries have been thriving, just not in Alaska.

Flint Hills runs more successful refineries elsewhere in the nation. So it’s not that they don’t know the industry, it’s that running a refinery in Alaska is more costly.

Sorting out the chemical spill

PolitiFact also wanted to look at the story behind the chemical spill, which is a point of debate among Alaskans.

The refinery originally opened in 1977. In 2000, before Flint Hills Resources bought the refinery, a chemical called sulfolane started leaking into the groundwater from the refinery. When leaked in large quantities, the solvent renders water undrinkable.

Flint Hills bought the plant in 2004 from Williams Alaska Petroleum. Since then, the contamination has continued to spread. But there are legal battles about who’s responsible for the contamination and cleanup: Flint Hills, previous owners and the state.

The Koch company filed a lawsuit hoping to collect damages from Williams. Flint Hills argued they didn’t know the extent of the contamination until 2008, long after they bought the refinery. They want Williams and the state to pick up the tab for the contamination.

But the Superior Court ruled last November that Flint Hills should have known about the contamination by 2006, and waited too long to take the previous owner to court.

Another complication is that Flint Hills disagrees with the state about how much sulfolane is too much: They say 362 parts per billion is safe, but the state is pushing for 14 parts per billion. The state’s much lower estimate is based on a 2012 report by the Environmental Protection Agency.

Going forward

The company crafted a video response to Begich’s ad.

"The reality is, this plant is still operable and our dedicated team is doing the work so that another business can restart the facility," the narrator said.

Former Mayor Jeff Jacobson did give Flint Resources credit for working to give area residents access to clean drinking water. But the company’s efforts to help don’t negate the effects of the refinery’s closure on the surrounding community, he added.

"It also affects other parts of our economy. Because the refinery was a major customer, it’s going to impact our utility rates here locally now," he said. "There’s a ripple effect on this downsizing and closure of the refinery."

So will the court case bring clarity to what happened at the refinery? It might, but it could take awhile. Alaska Dispatch reported that the case is likely to play out in multiple courts before it’s definitively resolved.