Big Spring Update

Alon USA issues statement on refinery explosion; regional supply questions arise

DALLAS -- Alon USA Energy Inc. confirmed yesterday that it experienced an explosion and fire at its Big Spring, Texas, refinery that has temporarily shut down production at the 70,000-barrels-per-day facility. Later in the day, an Associated Press report said that the company hoped to restart the facility in about two months. And although the incident raises regional supply questions, Alon USA has assured its customers that it will fulfill all of its commitments.

The cause of the explosion, which occurred at approximately 8:15 a.m. Central, and the extent of the damage, were not yet known. [image-nocss] A thorough investigation will begin as soon as reasonably possible. Four workers were injured, but the injuries were not believed to be life threatening.

Jeff D. Morris, Alon's president and CEO, said, "We are concerned by this unfortunate accident, and our main focus right now is on the welfare of the injured workers and their families as well as on ensuring that the refinery is safe for investigators to begin determining the source and cause of the explosion. We are very grateful to our employees, Big Spring and Howard County emergency responders and local officials for their quick and very effective response and for their support. We are aware of the effects that the explosion has had on the members of our community, and we have just established a toll-free number to help address their concerns."

He added, "We also want to assure our customers that we will make all the appropriate arrangements to keep them supplied. We remain totally committed to the safe operation of the refinery and will provide additional information regarding the condition of the facility as soon as possible."

Crude oil advanced to a six-week high above $98 (later reaching just above $100) a barrel in New York, and gasoline futures rose to a record, on speculation that the Organization of Petroleum Exporting Countries (OPEC) will curb production, said Bloomberg. It added that gasoline prices surged after the Big Spring explosion.

Brad Samples, a commodity analyst for Summit Energy Inc., Louisville, Ky., said, "There's a big reaction to any refinery outage now because it's maintenance season. Also, it looks like there will be many unplanned outages like last year."

Gas prices, which were already on the rise Monday morning, got an added jolt following the explosion, added a report by Lubbock Online. Local regular unleaded retail prices, which stood at $2.84 a gallon on average Friday, had risen to $2.99 Monday, and in some cases spilled into the $3-a- gallon range.

"We had a truck at the gate trying to get a load" when the explosion occurred, Greg Hendricks, vice president of operations for Amarillo, Texas-based Taylor Petroleum Co., which supplies Chevron refined products across Lubbock, told the newspaper.

Hendricks said the driver was diverted to the Shell wholesale refinery in Odessa, where there was a five-hour wait. "I imagine it will get worse. What you don't want to see is panic buying," he said.

Hendricks said there is no way of telling what effect the Big Spring explosion will have on prices in the coming days. He said in Taylor Petroleum's case, the company purchases fuel from more than one source.

A day after the explosion, Chip Bonner, executive vice president and general counsel at Susser Holdings, Corpus Christi, Texas, which has 507 convenience stores in south and west Texas, said the explosion caused a logistical adjustment—getting fuel from different racks—and supply hasn't been threatened.

"As far as the MERC goes, you're seeing a lot of knee-jerk response to Big Spring," said Steve Mosby, partner, ADMO Energy, Kansas City, Mo. "But essentially you have a remote refinery off the beaten track…. It's not the Gulf Coast."

Having said that, Mosby told CSP Daily News that, as a buyer of fuel, he has been feeling the immediate effect of the refinery explosion with supply being sucked up from other parts of the country. Yesterday he said he was having trouble finding supply of a particular formulation of diesel.

Just how the supply issues and reaction from the commodities markets will affect retail prices is uncertain, Mosby said. "There's a lot of what-if's," he said. "I don't see $4 a gallon [for unleaded], but you're going to see widespread $3.50 per gallon—even in places like Tulsa."

Any falloff in supply due to the explosion means a tighter supply situation sooner than expected. In December, Lynn Westfall, chief economist for San Antonio-based refiner Tesoro, said March and April could see as much as one million barrels per day of refining capacity down for maintenance. That equates to two results: one, supply is tighter and that can be offset partially by the second result, that the refineries that are not refining as much are also not buying as much crude, freeing up supply for others.

March and April "will provide a good test for whether the fundamentals are going to take over and show some price declines in crude," Westfall told CSP Daily News.

Alon USA Energy, Dallas, is an independent refiner and marketer of petroleum products, operating primarily in the southcentral, southwestern and western regions of the United States. The company owns and operates four sour and heavy crude oil refineries in Texas, California and Oregon, with an aggregate crude oil throughput capacity of approximately 170,000 bpd. Alon USA markets gasoline and diesel products under the FINA brand name. It also operates more than 300 convenience stores in West Texas and New Mexico primarily under the 7-Eleven and FINA brand names and supplies motor fuels to these stores from the Big Spring refinery. In addition, Alon supplies approximately 800 additional FINA branded locations.

Alon USA's Big Spring refinery, which employs about 170 people, is located 290 miles west of Dallas in West Central Texas.

[To read more about spring fuel pricing volatility, look to the cover story of the February issue of CSP magazine.]

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