Refining rivalry.

• Author: Richardson, Jeffrey
• Position: Tesoro Alaska Petroleum Co. and Mapco Alaska Petroleum Inc. compete for market share in Alaska's gasoline retail market; Petro Star Inc. plans to build second plant

Refining Rivalry

Emblazoned on gasoline stations, the corporate colors of Tesoro and Mapco are the flags of a heated battle for market share.

The recent announcement by North Pole's Petro Star Refinery that it was going to build a second plant was greeted by some with skepticism. Petro Star is teaming up with MarkAir to build a Valdez facility that will supply MarkAir with jet fuel for its own fleet and also produce other fuels for sale in the Prince William Sound regional market.

Locked in their highly visible, two-way contest for Alaska's retail gasoline market, officials at Tesoro Alaska Petroleum Co. and Mapco Alaska Petroleum took time out from their rivalry just long enough to declare that Petro Star's plans are poorly conceived and not likely to prove viable.

There is no indication that Petro Star intends to compete directly with the big guys in the lucrative jet fuel market. Nor does Petro Star manufacture gasoline. But, acknowledges a Tesoro official, the Prince William Sound market is important to the company. "Every barrel is important," the spokesman notes.

For the average Alaskan, the competition between Mapco and Tesoro at the gas pumps has become emblematic of the state's crude oil refining industry as it comes of age. The duel will continue to dominate the refining picture for the foreseeable future, although less visible developments also will influence positioning, long-term planning and profitability of major players.

One of these developments is the announcement by Chevron that its venerable refinery at Nikiski will close in early summer because of eroding profit margins and increasing liability risks. Chevron launched the state's crude oil manufacturing industry in 1963.

Strictly speaking, the Chevron announcement leaves Alaska with eight crude oil refineries. But two of these on the North Slope and three topping plants along the trans-Alaska pipeline are not considered commercial producers. Counting Chevron's production, all refineries in the state were recently estimated to provide 600 employees with a $21 million annual payroll.

Ambitious plans floated several years ago by a California company, called Alaska Pacific Refining Inc., to build a 120,000 barrel-per-day refinery in Valdez also seem highly speculative. The state's current refining capacity is ample for the needs of the Alaskan market, according to experts.

Chevron's departure leaves Tesoro, Mapco and Petro Star competing for market share in home heating fuels and diesel, while the two largest refiners square off in the gasoline market. One of the things that makes the state's two biggest refiners interesting to watch is the marked difference in their strategic approach to selling gasoline, the area in which their competition is most intense.

Tesoro has opted to sell through 127 independently owned stations, supporting them with a $500,000 annual advertising budget. Thirty-four of the Tesoro stations operate in conjunction with 7-Eleven convenience stores. Tesoro recently...