HOUSTON (Reuters) - Little-known, privately held Hyperion Resources Inc. said on Wednesday it plans to build an $8 billion oil refinery, the first in the United States since 1976, at one of several sites under consideration in the U.S. Midwest.
Dallas-based Hyperion plans a 400,000 barrels per day (bpd) refinery as part of “the most environmentally sound energy center in the United States” that will include a power plant fueled by petroleum coke, a refining byproduct.
The plant will refine crude from the Canadian oil sands in Alberta to feed the U.S. market, the company said.
Hyperion officials were in Elk Point, South Dakota, on Wednesday to announce they were considering the small town on the Missouri River as a possible site for the energy center.
Hyperion is in a race to build the first U.S. refinery in 30 years with Arizona Clean Fuels Yuma, which has been struggling for years to obtain funding for its nearly $3 billion refinery plan that has so far secured about $35 million.
Hyperion’s announcement was surprising as U.S. refining executives have said they were growing reluctant to invest in capacity expansions at existing refineries due to growing competition from the Middle East and Asia and fears of slowing demand growth.
Refiners are also worried by congressional proposals to regulate the industry more tightly and Bush administration initiatives to decrease U.S. dependence on imported crude from volatile areas such as the Middle East, West Africa and Latin America.
Hyperion said its decision was a matter of economics.
“Gas prices are the highest in U.S. history and the U.S. refining industry hasn’t seen a significant change since 1976,” said Hyperion Project Executive J.L. “Corky” Frank, a former Marathon Ashland Petroleum president, in a statement.
“The fact is refining capacity in this country has not kept pace with demand.”
The company expects construction of the refinery alone will cost about $8 billion, or around $20,000 per barrel of crude oil throughput capacity, the high end of replacement cost for a U.S. refinery. News reports earlier put the cost at $10 billion.
Hyperion declined to discuss details on project financing or how important an incentive package from local or state governments might be in its decision where to locate the center.
The company plans to select the site within about a year.
Refining executives have said it takes at least five years to get the requisite permits for construction and operation of the refinery from environmental regulators.
Often, projects fall apart when investors drop out while awaiting the approval of the permits.
“We fully realize it’s a mountain to climb,” said spokesman Eric Williams. “We’re willing to do it.”
Hyperion expects construction to last four years and employ an average of 4,500 people, with peak employment of 10,000. Once operational, the refinery expects to employ 1,800 people.
If located in Elk Point, the refinery would be 10-12 miles
north of the town of 1,800 people, said City Council President Joyce Bortscheller.
“People of the area are very excited,” Bortscheller said. “I think it will bring back people who used to live in the area.”
Support in Elk Point depends on confidence that Hyperion will honor promises to maintain high environmental standards, she said.
The company is promising a state-of-the-art refinery and energy center that will, among other things, sequester carbon dioxide. Hyperion will insist other companies citing facilities at the energy center meet the same standards.
TransCanada Corp. TRP.TO plans its Keystone pipeline from Alberta to Illinois to pass through southeast South Dakota near Elk Point. The pipeline is scheduled to begin operation in 2009.
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