Cheap Bakken oil spawns plans for 2nd new North Dakota refinery

NEW YORK Fri Feb 8, 2013 12:00am GMT

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NEW YORK Feb 7 (Reuters) - A surge in oil production from the giant Bakken formation has spawned plans for a second new refinery in North Dakota as companies seek to take advantage of cheap crude.

MDU Resources and Calumet Specialty Products Partners said on Thursday they will jointly build and operate a 20,000 barrel a day (bpd) refinery in Dickinson that will run Bakken oil to produce diesel fuel. The joint venture will be called Dakota Prairie Refining LLC.

"Construction of the refinery could begin this spring and is expected to take up to 20 months," the two companies said in a statement, adding that the engineering and plant designs were in their final stages.

Oil production in North Dakota has jumped to 730,000 bpd from just over 100,000 bpd in 2006, primarily due to Bakken output, making it the second-largest oil-producing state after Texas.

The abundant supply has depressed crude prices, reinvigorating business for refiners that can access the crude, primarily in the Midwest.

Diesel demand in the state has soared along with shale development due to huge consumption by trucks coming to and from the Bakken fields, prompting a company called Dakota Oil Processing in 2011 to announce plans to build and operate an identically-sized refinery also producing just diesel in Williston, about 100 miles north of the Dakota Prairie plant.

A 20,000 bpd refinery is modest, and only two refineries of such a size have been built and opened in the United States in the past 35 years - both in Alaska.

MDU is in the oil and gas, utilities and construction businesses but not yet in refining. Calumet produces chemicals and runs one petroleum refinery in Superior, Wisconsin.

Their statement did not make clear whether the refinery had cleared all the necessary regulatory approvals and permits and the two companies could not be reached by telephone.

However, North Dakota Governor Jack Dalrymple said "the development of another oil refinery has been a longtime goal of our state and with this project we are achieving that goal," according to the companies' statement.

The Bismarck Tribune reported on Feb. 2 that Dakota Oil Processing had received a permit for its refinery and that there had been no complaints against the MDU/Calumet plan ahead of a deadline earlier this week.

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