Processing Magazine

North Dakota refinery construction gets underway

April 16, 2013
North Dakota oil
North Dakota produces the second-largest amount of crude oil after Texas.

Industries in North Dakota are excited at the prospect of having the first U.S. refinery built since 1976. The groundbreaking ceremony last month attracted senators, politicians and investors to the site, hoping that the new refinery would bring the state's diesel demand problem to an end, Reuters reported.

North Dakota produces the second-largest amount of crude oil after Texas but the state only has one refinery and has been meeting its demand of approximately 53,000 barrels of diesel consumed per day transported by trains and trucks from the U.S. Gulf Coast and from other states. The demand is expected to continue growing to about 75,000 barrels per day by 2025 and this is where the new refinery is going to play a major part. The Bakken shale is estimated to hold enough reserves to supply numerous refineries in North Dakota, since experts predict that demand will remain high over the coming years. Diesel fuel is very highly valued in North Dakota and refineries would allow the state to make better use of the Bakken shale, Governor Jack Dalrymple commented at the groundbreaking.

The facility will be constructed and run by MDU Resources Group Inc. and Calumet Specialty Products Partners and Dalrymple hopes that the project would encourage a fresh wave of investors interested in constructing refineries. North Dakota is an unusual case when it comes to building refineries, in terms of politics and economics, Reuters pointed out. The state has a relatively low population density and very little of the opposition from political, environmental and community groups that has been preventing the construction of refineries elsewhere. Typically, refineries are constructed near large urban centers but the market in North Dakota is different.

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The MDU/Calumet project is anticipated to be producing about 8,000 barrels of diesel per day within 20 months, significantly lower than refineries located at the Gulf Coast. However, its smaller size and modular design offers its own advantages, such as making the facility easier to build and even making it possible to move it to another location, if market conditions alter in future years. The facility was designed by engineering firm Ventech, which specializes in designing diesel refineries for remote locations.

However, even the most cautious predictions foresee that the Bakken shale would provide at least five decades supply of oil, extracted via hydraulic fracturing. According to estimates from the state Department of Mineral Resources, the oil production will reach 850,000 barrels a day by early 2014. Figures for September 2012 show that almost two-thirds of North Dakota's oil production from over 8,000 wells was transported by trucks. This is likely to change, as there are projects for at least two more new refineries in the works, Reuters said.

One of the projects may see a $450 million hydrocracker refinery funded by a mix of tribal funds and tax-exempt Tribal Economic Development Bonds through the U.S. Department of the Treasury. The second one was proposed by Dakota Oil Processing LLC, which had asked the state to backstop its bonds. The state is currently considering the request.