Plans are moving forward to build the biggest new refinery in 40 years in the U.S. at a time when gasoline consumption is expected to break an all-time record in 2016.
California-based Meridian Energy Group is expected to begin construction soon on the planned Davis Refinery in North Dakota that would take advantage of the Bakken shale play and process up to 55,000 barrels of oil a day. The project comes on the heels of the 2015 opening of the 20,000-barrel-a-day Dakota Prairie Refinery that represented the nation’s first new refinery since 1976.
“The Davis Refinery will be one of the most modern, efficient and environmentally-compliant refineries in the U.S. in more than 50 years,” Meridian Chairman and CEO William Prentice said in a prepared statement, noting that Houston-based BASIC Equipment is contracted for fabrication and construction services.
The Davis Refinery is more substantial than the smaller, “teapot” Dakota Prairie project, said Patrick DeHaan, senior petroleum analyst for GasBuddy, which surveys and predicts gasoline demand and pricing.
“The economics behind refining have not always been favorable. There’s a considerable risk to open a refinery,” DeHaan said. “Everybody wants cheap gas, but nobody wants a refinery near them.”
Several other refinery projects in recent years have been held up by environmental concerns and protests by residents. For instance, Houston-based Rock River Resources hasn’t been able to move forward with plans for a Utah refinery for years.
“It’s difficult to find a good place to put a refinery,” DeHaan said, “and it’s difficult to wedge yourself into an industry that has a lot of powerful players.”
However, thanks to cheap gasoline and strong demand, DeHaan noted, the U.S. is expected to break its 2007 record for gasoline consumption this year. So the short-term economics make sense, he said, although the growth of more fuel-efficient or electric and battery-operated vehicles makes the long-term concerns more considerable.
Although the U.S. hasn’t seen any new big refineries in 40 years, that hasn’t stopped many existing refineries from expanding. For instance, Motiva Enterprise’s Port Arthur Refinery in Texas doubled in size in 2012 to become the nation’s biggest refinery with a capacity of processing 600,000 barrels of oil a day.
Although North Dakota still has limited pipeline access, DeHaan called the David Refinery an interesting project because it will slowly scale up from an initial capacity of more than 27,000 barrels of crude processing a day. Also, Meridian plans to operate in part with tolling contracts similar to how oil and gas pipelines operate, Prentice said. That could create less day-to-day risk of finding buyers for the fuel products.