Vitus bringing competition to Alaska

Photo/Michael Dinneen/AJOC

The scrappy entrepreneurs who organized last winter’s emergency shipment of fuel through frozen seas to Nome are at it again.

Mark Smith and Justin Charon, who own and manage Vitus Marine along with Shaen Tartar, another partner, are busy delivering fuel this summer to remote western Alaska rural communities using new, technologically-advanced tug and barge units.

They are now also developing an independent 5 million-gallon bulk fuel storage plant at Port MacKenzie, the Matanuska-Susitna Borough’s port on Knik Arm across from Anchorage.

Site preparation is under way now and the company hopes to have construction of the facility begin next year.

The bulk storage plant, being done under an affiliate company, Central Alaska Energy, is intended to serve a niche market with specialized services, such as inventory management and fuel storage for customers, Smith and Charon said.

The large fuel operators could also be customers for Central Alaska Energy themselves, the two said.

Still, Central Alaska will be new blood in the Southcentral Alaska fuel business, and that’s just what’s needed, state officials who study the state’s energy situation have said.

Last January, Vitus Marine became briefly famous, thanks to intense international media coverage of the unprecedented shipment of fuel through sea ice assisted by the U.S. Coast Guard icebreaker Healy.

Bonanza Fuels in Nome had been caught short of fuel when a scheduled late season barge delivery was blocked by a Bering Sea storm.

Rather than fly the fuel in, which would have been prohibitively expensive, Bonanza turned to a new company, Vitus, for fresh ideas.

Smith and Charon are long-time veterans in the rural fuel and barge business, but their company, Vitus, was a new entity. Vitus had just started operation in the region last summer with two new tug and barge sets built under a long-term agreement with Alaska Village Electric Cooperative, or AVEC.

The solution for Nome is now well-known. Vitus arranged for a Russian tanker, the Renda, to deliver the badly needed fuel, and for the Healy to cut a path through the icepack in the Bering Sea and Norton Sound.

It all went off without a hitch. Nome got its fuel, and the Coast Guard got a chance to strut its stuff in the international media and, by the way, to remind Washington, D.C., that the nation has only one operating icebreaker, the Healy, which is really designed to support research and not break heavy ice for commercial shipping.

Two other U.S. icebreakers, which are heavier than the Healy, are laid up and only one is likely to be brought back into service.

Vitus’ business is delivering fuel, though.

The company got its start with the AVEC fuels contract and an agreement for the cooperative, which operates 53 small rural utilities, to finance the two tug-and-barge sets and buy fuel from Vitus on a multi-year contract.

“AVEC had been seeing year-over-year increases in fuel costs and its board asked for a long-range rate stabilization plan. We put together a proposal that would bring us in as new competition in the market,” Charon said.

Under the plan, AVEC financed and built the tugs and barges and leased them to Vitus as operator. AVEC remains as the owner, although Vitus may eventually purchase the equipment, Smith said.

The arrangement has precedents. Before Alaska became a state, the federally-owned Alaska Railroad, which historically operated steamboat service on the Yukon River and tributaries, built modern diesel-powered river towboats and leased them to Yutana Barge Lines. Crowley purchased Yutana, and now operates the Yukon barge service.

The tugs and barges were built in 2010 and delivered and went into service in western Alaska late 2011. One barge has a capacity of 8,000 barrels and the second a capacity of 10,000 barrels.

This year is the first full operating year for Vitus using the new equipment, Smith said, and so far things are going well for deliveries despite the usual glitches with weather and water depths in some rivers. Vitus has other customers in western Alaska besides its anchor customer, Smith said.

Meera Kohler, AVEC’s president, said, “It’s a little early to say exactly what the impact of receiving our fuel from Vitus has had on our delivered cost. I think our arrangement is saving us about 12 to 15 cents a gallon but I’ll be able to do a much more rigorous analysis when the year is closed out.”

What is unusual about the new tugs and barges is that they link together to effectively operate as a single unit, like a ship, Charon said. This has important advantages over the conventional tug and barge setup where the tug pulls and maneuvers the barge with towlines, which are metal cables or heavy rope.

This makes the combined units easier to maneuver when making beach deliveries in rough seas, where there are no docks, Smith said. The operation is also safer because it avoids the periodic breaking of towlines, which happens with the conventional setup. Breaks in lines and lash-backs of cables are a common source of injuries.

The tugs and barges, when linked, also have a speed advantage of about 20 percent over a conventional tug towing a barge, Smith said. The downside is that the units are typically more expensive than conventional equipment, he said.

Southcentral fuel storage

Meanwhile, the Central Alaska Energy venture involves the construction of six bulk storage tanks with a combined storage capacity of 5 million gallons. The company has a 5.5-acre lease at the site, so there is room for expansion.

“The advantage of the location compared with, for example, the Port of Anchorage is that the water depths at the dock are deeper, at 40 feet to 60 feet, compared with 40 feet and less at the Anchorage port,” Charon said.

There is also less of a siltation problem.

An expansion at Port MacKenzie would also not face the same kind of public opposition as has happened in Anchorage, where Government Hill residents overlooking the port worry about large quantities of fuel being stored at the base of the hill.

There is also some road and trucking distance advantage at Port MacKenzie for some customers, such as those in Interior Alaska who would be served via the Parks Highway.

The borough road to Port MacKenzie is gradually being improved. It is paved for half its length and the remaining gravel road is in excellent condition, Smith said. Still, it’s not the Parks Highway, he acknowledged.

If the planned Alaska Railroad link is built to Port MacKenzie it would improve access, he said. The rail bed is now under construction, but the Mat-Su Borough must still raise funds for the rails to be laid.

A principal advantage of the Central Alaska facility is its modest size, which means it can be efficiently served with small or large shipments. Vitus has looked at building bulk storage elsewhere such as in Seward, but the tanks would have to be large and the facility would be best served by large shipments. The ability to efficiently work with smaller shipments will give Central Alaska more flexibility to meet particular customers’ needs.

“We’ll be small, and will provide an alternative for people who want a different level of service,” Charon said. “For example, a customer could lease space in one of our tanks, providing a way to store fuel. For some customers, such as construction contractors, having the ability to ensure a supply of fuel at a known cost is important.”

11/11/2016 - 11:44am