Refining a region: BP 'on track' with $3.8 billion project

WHITING | The road has been rocky since engineering and construction work began in May 2008 on BP Whiting Refinery's $3.8 billion modernization project -- touted as the largest single private investment in state history. There have been economic and fuel-price collapses; environmentalists and municipal officials challenged the project's impact on the region's air quality; and U.S. Immigration and Customs Enforcement agents led a December raid leading to contract workers being arrested.

Despite those challenges, BP spokesman Brad Etlin said the company is pleased with the progress of construction, equipment purchases and engineering -- which is now about one-third complete. He said the project is on track to be completed in early 2012.

"It's such a tough economy, and it's a huge sign and commitment to stay here for the long term," Etlin said.

The century-old refinery is being retrofitted with new and upgraded equipment that will enable the location to accept more heavy crude oil from Canada. Etlin said the refinery could produce 1.7 million gallons more motor fuel per day after the expansion project, while the amount of raw crude being processed remains near current levels. Peak output is about 7.5 million gallons of gasoline and 3 million gallons of ultra-low-sulfur diesel daily.

Etlin said the project will give the company flexibility in the type of raw crude it can produce. BP buys and refines more than two dozen types of crude oil including a small quantity of heavy Canadian crude.

"This means a much more secure and stable supply of the gasoline that we need today to fuel our cars and businesses," Etlin said via e-mail.

"And in an era where world politics and commodity speculation sometimes contribute to marked swings in the price of oil and the price of refined fuel, it is important that we position ourselves so we can keep producing the fuel you need to get to work, buy your groceries and take your kids to school."

Local economic boon?

Call it the BP ripple effect. Residents and local officials often worry about whether the company, considered one of business's big dogs in Northwest Indiana, can keep the facility thriving so it can maintain employment and bolster tax coffers.

Etlin said the Whiting Refinery, the largest in the Midwest, employs about 1,700 people, and Etlin said the modernization project will help keep that number of employees working in Northwest Indiana for the long term.

Randy Palmateer, business manager for the Northwest Indiana Building Trades Council, said that outside of day-to-day plant operations, 2,200 of its members, including pipefitters and ironworkers, are working on the project. Despite delays in the construction timeline, he said at peak construction, about 5,000 union contract workers could be on the job.

Palmateer said this project is deeply needed in the region because the troubled economy has limited construction work.

Cooperation between cities and businesses has helped move along "critical aspects of the project," Etlin said. BP received some tax abatement incentives from East Chicago; Whiting helped BP rebuild Standard Avenue; and the Indiana Economic Development Corp., a state agency, provided a $1 million infrastructure grant. ArcelorMittal leased land to BP to store equipment, and Praxair - already a BP supplier - agreed to sell the company more hydrogen and then used the purchase agreement to help fund its own capital development project.

Whiting Mayor Joe Stahura said the London-based company has shown a significant commitment to the city with the expansion project, calling it "the light at the end of the tunnel for city government."

"Everything we're doing locally in the city is making sure the project comes in on time and on budget," said Stahura, who retired from BP earlier this decade after working more than 20 years at the refinery. "We've dedicated whatever resources we have; we would drop anything we can to make sure the project gets first attention."

Once the project begins paying its share of taxes from the increased valuation, it will help lessen the blow of property tax caps to the city budget, Stahura said. He also hopes the expansion will be a catalyst for other developments, such as a hotel.

Michael Wieser, director of finance for the Lake County auditor's office, said if the company completes all the announced improvements and future property valuations reflect them, the company could be the county's largest taxpayer. Wieser said the state-assessed value of BP's land and improvements is more than $103 million, and the company lists the worth of its personal property at more than $310 million.

Environmental struggles

While construction continues in Whiting, so do legal battles in Hammond and Indianapolis on the project's potential impact on the environment.

In July, a Hammond federal judge dismissed part of the lawsuit the Natural Resources Defense Council filed requesting a halt to the expansion. One of the arguments Judge Philip Simon still will consider, however, is whether construction work started before the state granted BP a permit to do so, according to Josh Mogerman, NRDC spokesman.

Five cases remain open in a state administrative court regarding the issuance of an air permit to the BP Whiting Refinery, according to Judge Catherine Gibbs of the Indiana Office of Environmental Adjudication. Mogerman said the NRDC -- which serves as legal counsel in two cases involving local environmental groups -- said the lawsuits claim problems with BP's pollution calculation methods, and the Indiana Department of Environmental Management's approval of a less stringent air permit for the refinery.

BP, IDEM and environmental groups will square off early next month in the two cases set for oral argument on motions for summary judgment and dismissal. A final hearing on the matter is set for April. The Office of Environmental Adjudication will render a binding decision for IDEM, but any party could file an appeal in a trial court.

Mogerman, who works out of the council's Chicago office, said NRDC researchers and industry contacts contend certain pollution controls and infrastructure should be added to the facility but aren't currently planned. As a result, more pollution is going to be added to an already "toxic soup" of emissions present in the region.

"People in Northwest Indiana deserve the same protections as other people around the country," Mogerman said.

Bessie Dent, program coordinator for the Hammond-based Calumet Project, said she's concerned that most residents have bought into the notion that you can't have both good-paying jobs and a cleaner environment. Dent hoped the administrative court would force IDEM to pull the current permit and grant a more stringent one.

BP's Etlin said he couldn't comment on pending legal matters but said from 2001 through 2006, the refinery decreased regulated emissions -- which include carbon monoxide, mercury and benzene -- by 68 percent. Etlin said $1.4 billion of the project's value is for environmental improvements and meeting regulatory requirements.

"As part of the modernization, the refinery is removing older, less-efficient equipment and installing emission controls on upgraded and other units in order to reduce our environmental footprint," Etlin said via e-mail. "These proactive, voluntary measures will help us reduce regulated emissions by another 7 percent by the time the modernization is complete."

Management change:

After 23 years with BP and Amoco, Dan Sajkowski, Whiting Refinery business unit leader and vice president of BP Products North America, said he will leave the company in March. Nick Spencer, a former refinery manager for ConocoPhillips, has been named his successor.