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Agrimarketing : May 2009 Supplement
09 AG BIZ Refinery:16 Thinking Outside Box 5/5/09 4:11 PM Page 9 2009 NAMA AGRIBUSINESS LEADER OF THE YEAR CHSREFINERYINVESTMENTSHELP FUELRETAILERS’GROWTH L ong before producers could pump Cenex diesel fuel into their tractors for this spring’s fieldwork the decisionmakers at CHS had to pumpmoney – and lots of it—into their refineries. Since 1990, CHS has invested over $800million into the refinery it owns in Laurel,MT, and theNational Cooperative Refinery Association (NCRA) facility it co-owns in McPherson, KS. First came upgrades to produce ultra-low-sulfur diesel (ULSD), in accordancewith governmentmandates that all diesel fuel for off-road vehicles contain nomore than 15 ppmof sulfur by 2010.Next came installation of a coker at the Montana refinery, enhancing production by 150million gallons. “These investmentsweremade so we could continue to serve our customers for years to come,” saysDon Olson, Sr VP, refined fuels, CHS. “We have a high commitment level to businesses that are important to our customers, and providing a reliable fuel supply is of utmost importance to us.” Still, itwasn’t an easy decision, according to Olson. “When the ULSD investment decisionwas made, itwas a difficult year for our petroleumoperation financially. LeonWestbrockwent to our CEO and board of directors asking for capital thatwas needed to remain successful long term.” Although itwas a time of slim energy earnings, CHSmoved for- ward swiftlywith the upgrades. One of its refinerieswas the first in the U.S. to reach themandated 15 ppm sulfur, and the other refinery followed shortly after in early 2006. “We could have delayed our investment for up to four years, but we opted tomake all the dieselwe produce ultra-low-sulfur right away,” saysDan Knepper, Sr VP, Laurel Operations. “ULSD is better for the environment. Plus, CHSwanted to provide the right fuel products for engines that need ULSD, sowe could position our dealers ahead of the competition.” UPGRADES TO MEET DEMAND Increased efficiency is another benefit. “Diesel sales continue to growfor our northern tier customers (from Spokane,WA, to Fargo,ND),” says Olson. “The coker upgrade gives us the flexibility to reduce our asphalt production and increase our diesel fuel production.” Gas and diesel prices neared all- “Whenwe built the coker at Laurel to help supply demand for diesel fuel,we needed to find a home for the additional gasoline we’d be producing,” says Olson. In a strategicmove that required yet another investment of capital, CHS acquired 34 Zip Trip convenience stores in the Spokane area and converted themto the Cenex fuel brand. Proactive refinery upgrades have helped CHSmeet federalmandates and increase efficiency. “Those additional stores distrib- ute a considerable volume of fuel, helping keep the refinery as efficient and profitable as possible—which ultimately benefits all our customers in refined fuels,” says Olson. The next hurdle in federal fuel time highs by the time the cokerwas completed in 2008, providing significant return on investment fromits first day of operation. CHS REFINED FUELS AT A GLANCE • The nation’s largest cooperative refiner and a significantwholesaler and reseller of refined fuels. • Owns and operates a 55,000 barrel-per-day refinery at Laurel,MT, and maintains 74.5%ownership in theNational Cooperative Refinery Association’s 85,000 barrel-per-day refinery atMcPherson, KS. • Operates 1,200miles of crude and product pipelines and supplies customers from10 company-owned terminals and through a network of more than 250 third-party terminals. • Sellsmore than three billion gallons of refined fuels, including gasoline and diesel. • One of the nation’s largest suppliers of ethanol-enhanced gasoline and a leadingmarketer of biodiesel products. AM regulations is reducing benzene levels in gasoline to 0.62%by 2012. In addition,NCRAis looking at developing a pipeline to bring in crude oil fromCanada. Staying on top of changing envi- ronmental regulations and growing demand is a never-ending task, concludes Olson. “It’s a balancing act. As head of our energy division and board chairman ofNCRA, Leon does an admirable job of balancing our investmentswith economic return and long-termstrategy.” AM Annette Bertelsen is a freelancewriter based inMinnetonka,MN. She provided content for several articles in this supplement. Contact her at email@example.com. May 2009 s Agri Marketing 9