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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--North Dakota is having a genuine grassroot refinery boom. Two small refineries in this state broke ground earlier this year, a third is working to secure financing, and a fourth is rumored to be in the works. Given that the last grassroot refinery to be built in the U.S. broke ground when Jimmy Carter was president, this burst of project activity is a welcome and exciting development for the U.S. Petroleum Refining Industry.
Executives from the three North Dakota refineries discussed their projects, local market dynamics and strategic trends in their industry at the Fourth Annual Bakken Infrastructure Finance & Development Week, held here earlier this month. The conference, which drew about 100 attendees, was sponsored by Information Forecast Incorporated (Infocast) (Woodland Hills, California).
One refinery under construction, the $300 million Dakota Prairie Refinery, will be capable of processing up to 20,000 barrels of crude oil per day (BBL/d) when it begins operating by the end of 2014. The refinery, which will process North Dakota crude, is being developed by Dakota Prairie Refining, a joint venture between units of MDU Resources Group Incorporated (NYSE:MDU) (Bismarck) and Calumet Specialty Products Partners LP (NASDAQ:CLMT) (Indianapolis, Indiana). It broke ground this past March.
"We chose to build a 20,000-BBL/d refinery because that's the sweet spot for the modular technology chosen for the project," Paul Hopfauf, vice president of business development for WBI Energy, a subsidiary of MDU, told the conference on September 10. "The nature of the modular technology is that it could easily be expanded in the future, if demand grows."
The second North Dakota refinery under construction, the 20,000-BBL/d Thunder Butte project, broke ground this past May and is scheduled to be operating by mid-2015. The project has a total investment value (TIV) of about $300 million. Both refineries under construction are expected to produce mainly diesel and naphtha. The diesel will be consumed within North Dakota by the agricultural, oil & gas and transportation industries.
"There's a really strong demand for diesel fuel in North Dakota. The state is actually importing diesel, if you can believe it," Richard Mayer, chief executive of Thunder Butte Petroleum Services Incorporated (New Town, North Dakota), developers of the Thunder Butte refinery, told the Infocast conference.
North Dakota is producing about 875,000 BBL/d of crude oil, and some experts predict a doubling of production within the next decade. For more on the state's crude oil production and projections, see September 20, 2013, article - Executives Predict North Dakota Crude Oil Production will Double within Decade. Currently, most of the state's crude oil is being shipped out of state by pipelines and railcars. The state's one existing refinery is the Mandan Refinery, a 60-year-old, 58,000-BBL/d plant operated by Tesoro Corporation (NYSE:TSO) (San Antonio, Texas).
A third panelist at the Infocast conference, Chester Trabucco, chief executive of Dakota Oil Processing LLC (DOP) (Dickinson, North Dakota), estimated North Dakota currently uses about 52,000 BBL/d of diesel fuel, and diesel demand is only partly being met by Tesoro's Mandan Refinery. And as the state's oil & gas industry continues growing, demand for diesel is expected to increase to about 74,000 BBL/d by 2025.
"These three refineries will balance local demand for and production of diesel fuel," Trabucco told the conference. "Meeting future demand may require either expanding one of the existing refineries, or even constructing a fourth grassroot refinery."
"Interest in financing our greenfield refinery increased significantly after MDU and Calumet announced plans for the Dickinson refinery," continued Trabucco, whose company is seeking to obtain financing to build its proposed, 20,000-BBL/d Trenton Diesel Refinery. "The fact that a major refiner and North Dakota's largest company came together and financially vetted their refinery project gave our project enhanced credibility. After ground was broken on the Dickinson refinery, our phone has been ringing off the hook."
Trabucco said DOP has been developing the feasibility studies and working to line up financing for its refinery for about three years. That refinery has a total investment value (TIV) of about $250 million, he told the conference. The DOP CEO said he expects to have financing confirmed in the next few months, kick construction off in spring of 2014 and be operating by late 2015.
A fourth panelist, Mark Routt, regional practice leader at KBC Advanced Technologies (Houston, Texas), noted that constructing and operating refineries required a large amount of capital. So the natural question is 'Why build three small refineries instead of one larger one?' The answer, Routt told the conference, is that U.S. Environmental Protection Agency (EPA) policies effectively force companies to limit the size of these plants to keep air emissions under the regulatory threshold. This increases the cost of building refineries, complying with regulations, and ultimately the price consumers pay for the refinery's products.
Routt said that similar sized "modular" refineries were also being considered in other locations such as the Brazilian rainforest. The key to economic success in all these cases was speed to market and access to either low-cost feedstock (such as in the Bakken) or demand for difficult-to-find--and thus high-priced--products, such as in Brazil.
Routt's comments were echoed by other panelists. There also was agreement that in the case of the North Dakota projects, signing hedging and off-take agreements were the most challenging aspects of developing a grassroot refinery, even harder than obtaining state or federal approval for a new project. "The economics of a grassroot refinery depend on logistics, supply, off-take and hedging agreements," Trabucco said. But because those agreements are confidential, none of the panelists could discuss them publicly.
Routt noted the Thunder Butte refinery was in a slightly different situation compared to the other grassroot refinery projects: Thunder Butte is located on tribal land and had access to its own crude reserves, as well as a natural demand for the products from the tribe itself. However, the regulatory agency for this project was the Federal Bureau of Indian Affairs (BIA), and that presented the developer with a unique set of challenges.
View Plant Profile - 3049341 1069647 1075057 1017048
View Project Report - 300061553 31000316 300059151 31000479 31000368 300020244 300059149
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Executives from the three North Dakota refineries discussed their projects, local market dynamics and strategic trends in their industry at the Fourth Annual Bakken Infrastructure Finance & Development Week, held here earlier this month. The conference, which drew about 100 attendees, was sponsored by Information Forecast Incorporated (Infocast) (Woodland Hills, California).
One refinery under construction, the $300 million Dakota Prairie Refinery, will be capable of processing up to 20,000 barrels of crude oil per day (BBL/d) when it begins operating by the end of 2014. The refinery, which will process North Dakota crude, is being developed by Dakota Prairie Refining, a joint venture between units of MDU Resources Group Incorporated (NYSE:MDU) (Bismarck) and Calumet Specialty Products Partners LP (NASDAQ:CLMT) (Indianapolis, Indiana). It broke ground this past March.
"We chose to build a 20,000-BBL/d refinery because that's the sweet spot for the modular technology chosen for the project," Paul Hopfauf, vice president of business development for WBI Energy, a subsidiary of MDU, told the conference on September 10. "The nature of the modular technology is that it could easily be expanded in the future, if demand grows."
The second North Dakota refinery under construction, the 20,000-BBL/d Thunder Butte project, broke ground this past May and is scheduled to be operating by mid-2015. The project has a total investment value (TIV) of about $300 million. Both refineries under construction are expected to produce mainly diesel and naphtha. The diesel will be consumed within North Dakota by the agricultural, oil & gas and transportation industries.
"There's a really strong demand for diesel fuel in North Dakota. The state is actually importing diesel, if you can believe it," Richard Mayer, chief executive of Thunder Butte Petroleum Services Incorporated (New Town, North Dakota), developers of the Thunder Butte refinery, told the Infocast conference.
North Dakota is producing about 875,000 BBL/d of crude oil, and some experts predict a doubling of production within the next decade. For more on the state's crude oil production and projections, see September 20, 2013, article - Executives Predict North Dakota Crude Oil Production will Double within Decade. Currently, most of the state's crude oil is being shipped out of state by pipelines and railcars. The state's one existing refinery is the Mandan Refinery, a 60-year-old, 58,000-BBL/d plant operated by Tesoro Corporation (NYSE:TSO) (San Antonio, Texas).
A third panelist at the Infocast conference, Chester Trabucco, chief executive of Dakota Oil Processing LLC (DOP) (Dickinson, North Dakota), estimated North Dakota currently uses about 52,000 BBL/d of diesel fuel, and diesel demand is only partly being met by Tesoro's Mandan Refinery. And as the state's oil & gas industry continues growing, demand for diesel is expected to increase to about 74,000 BBL/d by 2025.
"These three refineries will balance local demand for and production of diesel fuel," Trabucco told the conference. "Meeting future demand may require either expanding one of the existing refineries, or even constructing a fourth grassroot refinery."
"Interest in financing our greenfield refinery increased significantly after MDU and Calumet announced plans for the Dickinson refinery," continued Trabucco, whose company is seeking to obtain financing to build its proposed, 20,000-BBL/d Trenton Diesel Refinery. "The fact that a major refiner and North Dakota's largest company came together and financially vetted their refinery project gave our project enhanced credibility. After ground was broken on the Dickinson refinery, our phone has been ringing off the hook."
Trabucco said DOP has been developing the feasibility studies and working to line up financing for its refinery for about three years. That refinery has a total investment value (TIV) of about $250 million, he told the conference. The DOP CEO said he expects to have financing confirmed in the next few months, kick construction off in spring of 2014 and be operating by late 2015.
A fourth panelist, Mark Routt, regional practice leader at KBC Advanced Technologies (Houston, Texas), noted that constructing and operating refineries required a large amount of capital. So the natural question is 'Why build three small refineries instead of one larger one?' The answer, Routt told the conference, is that U.S. Environmental Protection Agency (EPA) policies effectively force companies to limit the size of these plants to keep air emissions under the regulatory threshold. This increases the cost of building refineries, complying with regulations, and ultimately the price consumers pay for the refinery's products.
Routt said that similar sized "modular" refineries were also being considered in other locations such as the Brazilian rainforest. The key to economic success in all these cases was speed to market and access to either low-cost feedstock (such as in the Bakken) or demand for difficult-to-find--and thus high-priced--products, such as in Brazil.
Routt's comments were echoed by other panelists. There also was agreement that in the case of the North Dakota projects, signing hedging and off-take agreements were the most challenging aspects of developing a grassroot refinery, even harder than obtaining state or federal approval for a new project. "The economics of a grassroot refinery depend on logistics, supply, off-take and hedging agreements," Trabucco said. But because those agreements are confidential, none of the panelists could discuss them publicly.
Routt noted the Thunder Butte refinery was in a slightly different situation compared to the other grassroot refinery projects: Thunder Butte is located on tribal land and had access to its own crude reserves, as well as a natural demand for the products from the tribe itself. However, the regulatory agency for this project was the Federal Bureau of Indian Affairs (BIA), and that presented the developer with a unique set of challenges.
View Plant Profile - 3049341 1069647 1075057 1017048
View Project Report - 300061553 31000316 300059151 31000479 31000368 300020244 300059149
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
