North Dakota Refinery Boom

Brian Hicks

Written By Brian Hicks

Posted April 11, 2013

North Dakota is all set to introduce its first oil refinery since 1976 in hopes that it will help solve the state’s diesel demand issue. Right now, the state only has one refinery in operation.

The refinery will come from MDU Resources Group Inc. (NYSE: MDU) and Calumet Specialty Products Partners (NASDAQ: CLMT). MDU will supply the oil using its own drilling operations, and Calumet will help in its operation. Calumet is already the operator of various refineries around the nation.

The Bakken shale formation in North Dakota, which contains a vast, oil-rich layer of shale rock deep beneath its surface, has brought the once-tepid oil climate back to roaring production levels.

North Dakota is now producing more crude oil than any other state except Texas, and its production now compared to six years ago is like night and day.

Diesel and Transport

But because the state only operates one refinery, and even though it produces tons and tons of oil, it is foolishly still importing the roughly 53,000 barrels of diesel that it consumes each day to sustain its exploitation efforts.

The diesel is used in the rigs that extract the oil from the ground and the trucks and trains used to transport it all. According to Reuters, daily needs in the Bakken are on pace to reach 75,000 barrels by 2025.

These needs are met primarily by refineries from the U.S. Gulf Coast, which have resources in constant back and forth travel to keep the Bakken supplied with its diesel needs.

oil natural gas refinery silhouetteAnd the majority of oil is moved by diesel trucks. Beginning late last year, about 64 percent of North Dakota oil is transported via these trucks.

The basic necessity for diesel in the state of North Dakota is clear, and having access to it locally would save a whole heck of a lot of time and money.

For years, North Dakota refineries faced heavy opposition from environmentalists, and it became a political battleground whenever the word “refinery” was uttered; it has been that way since Jimmy Carter was president.

But now, there is little of that same scrutiny from years gone by, and a growing need is shedding light on the matter.

The MDU and Calumet project hopes to be up and running in the next 20 months, reports Reuters, and the companies plan to produce around 8,000 barrels of diesel each day. Though it’s aiming for a lower production number than other refineries, the scale is different; it will offer easier construction and mobility. Ventech, a company that builds smaller diesel refineries, will build it.

Hopes are that this new, smaller refinery, once proving successful, will attract investors to want to build more refineries in the Bakken.

More Refineries

If all goes according to plan, and North Dakota really does loosen its reigns on refinery construction, three possible refineries could see production in the near future.

A hydrocracker refinery proposed by the MHA Nation is also on the table for the near future. Coming in at around $450 million, the project could begin as soon as May if approval goes through, reports Reuters.

The third proposal has been kicking up dust for seven years now. Dakota Oil Processing, LLC has been trying to build a refinery since the whole North Dakota shale boom kicked off, but just last year, private investors in South Korea withdrew support. It then reluctantly asked the state for support, who was seriously mulling the request over until finally rejecting the deal once the MDU/Calumet project announced that it would fund the $300 million refinery with its own money, accoridng to Reuters.

All three refineries would likely be able to coexist because of the high demand for diesel fuel, and the total supply would be about 26,000 barrels per day. That number is far less than the projected demand heading into the future but a good indicator for any future endeavors.

Flaring Initiative

Flaring is one major issue in the region that new refineries could reduce. The production at drilling sites is so fast and aggressive that it’s creating an overabundance of gas and oil, and for now, the proper infrastructure is not in place to support the excess—thus flaring, where raw natural gas associated with the oil is burned off at the site.

This is more prevalent where there is a lack of sufficient pipelines or overall infrastructure for the operation. In the case of the Bakken region, a lot of its flaring problems rest with its transportation, or lack thereof.

For now, such little infrastructure is in place that gas is being burn constantly, day in and day out. And the oil is similarly piling up. A refinery close to the source could drastically reduce the excess fuel, minimizing the pressing need for additional infrastructure..

Every little bit really would help, whether that be in one, two, or all three of the proposed refineries sitting on the table.


If you liked this article, you may also enjoy:

Angel Publishing Investor Club Discord - Chat Now

Brian Hicks Premium


Hydrogen Fuel Cells: The Downfall of Tesla?

Lithium has been the front-runner in the battery technology market for years, but that is all coming to an end. Elon Musk is against them, but Jeff Bezos is investing heavily in them. Hydrogen Fuel Cells will turn the battery market upside down and we've discovered a tiny company that is going to make it happen...

Sign up to receive your free report. After signing up, you'll begin receiving the Energy and Capital e-letter daily.