Bismarck, N.D.鈥� Before Quantum Energy, Inc. came to Saskatchewan with a refinery proposal at Stoughton, they proposed three refineries in North Dakota and two in Montana.
Lynn Helms is the long-time director of the North Dakota Department of Mineral Resources. He spoke to Pipeline Newson May 23 at the Williston Basin Petroleum Conference in Bismarck, N.D., where he was the co-host of the conference.
Asked on May 23 how far Quantum got into the regulatory process for its three proposed refineries in North Dakota, Helms said, 鈥淭o the best of my knowledge, they never applied for any air or water permits in the state. They acquired land. They did FEED (front end engineering and design) and looked at the potential for the small, Dickinson-sized refineries.
鈥淪everal things have changed since then. One of the major factors is the demand for diesel is way down. Companies have converted a lot of their rigs to dual fuel. Trucking is down because of pipeline transportation of the oil and water, and frac crews are doing dual fuel as well. It鈥檚 made the economics of small refineries much, much more difficult. You saw MDU Resources sell their refinery. They were in partnership with Calumet. They sold to Endeavour, which was Tesoro. They merged with Western Refining and became Endeavour, and they were purchased by Mobil.鈥�
The MDU refinery at Dickinson was built a few years ago and sold shortly after it opened.
鈥淵ou have to think, if there鈥檚 an opportunity to make money in the refining business, Mobil is going to be looking at it really hard. They鈥檙e going to be the U.S.鈥檚 number one domestic refiner. And so the economics are going to be much, much tougher than they are some years ago.
Helms continued, 鈥淚 think some of these folks鈥� business model was to get in, get a site located, get the land acquired. Get the permitting process in place. Do the FEED studies, then be able to sell that permit to another company, and so I still wonder if that isn鈥檛 the business model we鈥檙e looking at. Diversify. Spread your eggs across the landscape. Some are going to work out. Some aren鈥檛. But the economics of that market have become much more difficult with the decreased diesel demand and the new pipelines, two large refinery centres, and export capacity.
鈥淭hat鈥檚 another big change. When they were starting all this business, the export ban was on, and that鈥檚 gone now,鈥� Helms said.
Asked if proposing six refineries, including three in North Dakota, was a bit of an overreach, Helms responded, 鈥淎gain, it might be, depending on the size of the company and their capitalization. I think the approach is to have lots of options on the table and to be able to market one of those options that has good economics to a company like Tesoro, Mobil, Endeavour, Davis, something like that.鈥�
As for the last time his department has heard from Quantum, Helms said, 鈥淚t鈥檚 been over a year. It鈥檚 somewhere between a year and 18 months.鈥�
鈥淭hey were serious discussions where they were looking for data on crude oil production projections, pipeline projections, and trying to find areas where a small, niche-sized refinery could make money, where crude oil was 小蓝视频 transported out by rail, or there was a lot of demand for diesel, and those kind of things.
鈥淭hey were serious discussions about what does oil production look like in various counties, what are the transportation options look like, county-by-county.鈥�
Asked if these all looked like short-term horizons, not 40 years, he said, 鈥淚 think you鈥檇 be correct there.鈥�
He had not heard anything at all regarding a Saskatchewan refinery by Quantum.
North Dakota has two refineries currently, the Mandan and Dickinson refineries, and a third, the proposed Davis Refinery, at Belfield, ND, would be doing a presentation at the conference later that day. (see story in the upcoming July edition of Pipeline News). To that end, Helms said, 鈥淣ot only have the economics become tougher, there鈥檚 some pretty good competition in this area for folks like Quantum.鈥�
That third refinery, Davis, still does not have their air permit from the state. 鈥淭hat鈥檚 the one piece that they鈥檙e lacking. Based on the information I have, that鈥檚 likely and probably not too far in the distant future. They would well ahead of a company like Quantum, who really just acquired land in strategic locations and had done the FEED studies.
Asked if companies with one employee and rent their office by the hour build refineries, Helms replied, 鈥淯m, typically no.
鈥淭ypically they identify strategic locations and do the FEED studies. They spearhead some of the permitting. But more often than not, somebody else comes in and capitalizes it and builds the refinery.鈥�
鈥淵ou鈥檙e going to need a solid team of 10-15 people and several hundred million dollars to push that thing forward from the FEED study, through the permitting to break ground and get any sort of construction going on.鈥�
That鈥檚 before they break ground. Helms said, 鈥淵ou better have your capital together.鈥�
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