COLUMN-Facing high fuel costs, North Dakota plans new refineries: Kemp

Tue May 28, 2013 1:27pm EDT

Related Topics

By John Kemp

LONDON May 28 (Reuters) - North Dakota's residents have received an enormous income windfall from the shale boom, but strong local demand for trucking and fracking fuel has left them facing the highest gasoline prices in the mainland United States.

Only insular Hawaiians pay more to fill up at the pump.

North Dakota needs more local refining capacity to turn its abundant, high-quality crude into gasoline and especially diesel for trucks and oilfield operations.

There are proposals for three new refineries, which would double existing capacity, though not all may be built.

The average price for a gallon of regular gasoline in the remote prairie state is $4.13, compared with $4.00 in California and $3.73 in New York, according to price comparison website GasBuddy.com ().

Prices are exceptionally high even though the state levies below average taxes and fees. North Dakota adds just 23 cents per gallon in excise tax and other charges to the pump price of gasoline, compared with an average of 25-27 cents nationwide.

California and New York both add more than 50 cents per gallon, according to the American Petroleum Institute (API).

The pre-tax cost of gasoline in North Dakota is an eye-watering $3.72 per gallon, 40 cents more than California and almost 70 cents higher than in New York.

Before federal and state taxes, North Dakota gasoline costs nine cents more than in neighbouring South Dakota, 19 cents more than in Minnesota to the immediate east and almost 50 cents more than in Montana to the west.

All gasoline markets are local and North Dakota is far from the main refining centres of the Gulf Coast, the Midwest and California. Limited access by pipeline and barge means that most gasoline and diesel have to be produced locally or brought in by truck.

North Dakota's lone refinery at Mandan, operated by Tesoro , has the capacity to process just 68,000 barrels of crude per day, recently upgraded from 58,000, a level that had not changed for 30 years, reflecting the modest needs of a farm-state economy.

But as a consequence of the boom and the influx of oilfield workers, consumption of gasoline has jumped 27 percent in the last five years to 27,000 barrels per day. The supply situation for diesel is even tighter. Demand for diesel has nearly doubled to 52,000 barrels per day, according to the U.S. Energy Information Administration (EIA).

The result is an acute local shortage of fuel for cars, trucks and oilfield generators, putting upward pressure on prices.

The high cost of fuel locally is one reason fracking firms have begun to experiment with hybrid engines that run on a mixture of natural gas and diesel, rather than diesel alone.

The other option is to build more refining capacity to turn some of the state's abundant and easy-to-refine light low sulphur crude into finished products.

REFINERIES GALORE

Refineries are like buses: you wait ages then three come along at once.

Last month, Thunder Butte Petroleum Services held a ground-breaking ceremony on the first phase of what could become a new 20,000 barrel per day refinery on the Fort Berthold Indian Reservation. The MHA Nation Clean Fuels Refinery project is wholly owned by the Mandan, Hidatsa and Arikara (MHA) tribes.

Initially, Thunder Butte plans to build an oil transloading facility to move crude out of the state, but work could begin on the refinery proper next year if financing can be agreed, according to local news reports ("Two more diesel refineries planned in North Dakota," Great Falls Tribune, May 25).

According to the plans, Chemex LLC would build a simple, modular refinery, with atmospheric distillation unit and hydrocracker, in Bakersfield, California, then ship it for assembly in North Dakota.

North Dakota's Bakken crude typically varies between 40 and 42 degrees API, so simple distillation will yield large volumes of diesel, without further processing, and with only small quantities of residue.

Sulphur content is below 0.2 percent so diesel distilled from Bakken requires only a modest amount of further processing to produce road-quality ultra-low sulphur diesel (ULSD).

Dakota Oil Processing has long-standing plans to build another 20,000 barrels per day atmospheric distillation tower at Trenton in the far west of the state, coupled with an 8,000 barrel per day hydrotreating unit to remove excess sulphur and enable the refinery to produce ULSD for road use. The project is still seeking financing.

MDU Resources Group and Calumet Speciality Products Partners have formed a joint venture to build a third 20,000 barrel per day refinery near Dickinson. A ground breaking ceremony was held in March.

It is far from clear whether all these projects will raise sufficient funding to turn their plans into reality. If all three refineries were built, the state would shift from a product deficit to a big surplus. Diesel prices especially would fall, though gasoline prices would probably ease a little as well.

The projected new capacity will not come onstream before 2015 and 2016. In the meantime, North Dakotans will be stuck paying some of the highest gasoline and diesel prices in the country even though most of the products are refined from their own crude.

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
bully777 wrote:
Interesting column; but the math is flawed. The author claims if all three proposed “refineries” are built the state will go from being in a product deficit position to a large product surplus position. In reality the state would remain in a product deficit position. The only current refinery in ND produces 22,000 BPD of diesel. Each of the three proposed facilities would produce roughly 7,000 BPD (based on MDU stating they expect to refine about a third of the daily input of 20,000 barrels into diesel…and it should be noted that their facility is the only one actually under construction). Assuming similar diesel output from the other facilities (and that they’re actually constructed, which is decidedly unlikely) total ND diesel production would peak at 43,000 BPD; which is still 10,000 less than what was necessary in 2012.

May 28, 2013 3:26pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.