Crude oil production in North Dakota’s Bakken Shale continues to grow at a faster pace than the pipelines and railcars needed to move the crude to large national refineries.
So, like Mohammad and the mountain, some companies are instead building small refineries in North Dakota, trying to take advantage of the low cost of Bakken crude and a growing demand for fuel in the local area.
The first of three new refineries in the works is the 20,000-barrel-per day Dakota Prairie refinery, which broke ground earlier this week. Its owners, a joint venture between MDU Resources Group and Calumet Specialty Products Construction, estimates that construction will be completed within the next two years.
“Through this joint venture we are continuing to expand both our midstream energy business and our vertically integrated investment in the Bakken oil play,” said David L. Goodin, president and chief executive officer of MDU Resources. “There is a strong existing market for the plant’s production.”
Dakota Oil Processing, plans to spend $200 million to build and start-up a second refinery, the Trenton Diesel Refinery, which will also have a 20,000-barrel-per-day capacity. It has received an air quality permit and the project is under planning, but no start-up date has been announced.
There is also a third planned refinery that is being planned by three affiliated tribes, the Mandan, Hidatsa and Arikara Nation, according to Hart Energy Research’s North American Shale Quarterly Service. Construction for the refinery, the Thunder Butte Petroleum Services, is scheduled to begin in the spring of this year and will have a capacity of 20,000 barrels per day when completed.
These three refineries are some of the first to be built in the United States in the last decades. The projects fly in the face of conventional refining wisdom, which counsels that refineries can only be profitable if they are large enough to achieve economies of scale.
“One of the problems oil producers have right now with the Bakken is that a lot of the crude oil is getting stuck,” said Thomas Tunstall, research director for the Institute for Economic Development at the University of Texas at San Antonio. “They are still struggling to establish pipeline capacity – I suspect that is driving these Mom-and-Pop refineries nearby.”
Building refineries: Barriers bottle up refining plans
The demand for diesel fuel in the Bakken has grown 80 percent in the last three years, driven by the oil boom and the increased use of trucks for hauling water and waste materials that has come with it, according to the Energy Information Administration.
North Dakota’s currently lone refinery, the Tesoro Mandan refinery, has a capacity of 60,000 barrels per day, and can process diesel fuel, jet fuel, heavy fuel oils and liquefied petroleum gas. It is located near Bismark.
The two new refineries will focus on creating the diesel and kerosene that are needed locally.