Sen. John Warner got a positive answer March 20 from the director of the North Dakota Pipeline Authority when he asked whether there had been any progress in attracting petrochemical businesses to North Dakota, companies that would “utilize the liquid portions” of the state’s increasing production of natural gas.
Not only “value-added” products, Warner asked Justin Kringstad, who was making a presentation to the state Legislature’s Energy Development and Transmission Committee, but outside interest in “developing a more aggressive manufacturing sector in North Dakota, based on this natural resource we have.”
While Kringstad did not have an answer to the senator’s manufacturing question, he said firms were “definitely eyeing” North Dakota’s propane and butane supplies, both a component of natural gas liquids, or NGLs.
“I don’t know how much they want to disclose in an open forum like this but I can tell you that there are folks very aggressively researching the petrochemical, value-added aspects of utilizing the natural gas liquids in North Dakota, in order to take it that next step further down the petrochemical chain,” Kringstad said.
“Without disclosing proprietary information,” Warner asked whether Kringstad could give him an approximate “time window,” when plans might come together.
“Right now they are doing quite a bit of homework. If they decide to move forward you could see activity within the next 2-5 years,” Kringstad replied.
“They,” as it turns out, is more than one firm, per Ken Otto, senior vice president with energy consultancy Purvin & Gertz.
“There is more than one party involved,” he told Petroleum News Bakken April 12; not only petrochemical plants, but at least one party is “looking at grassroots refineries” — a party other than the joint venture announced in February between MDU Resources Group subsidiary WBI Holdings Inc. and Calumet Refining LLC, to explore the feasibility of building and operating a 20,000 barrel per day diesel refinery in southwestern North Dakota.
In an interview with Petroleum News Bakken on April 9, Kringstad “for confidentiality reasons,” could still not reveal company names, but he confirmed “propane and butane is the feedstock” one “particular (petrochemical) group is looking at,” because of the “growing supply of natural gas liquids,” produced in North Dakota.
Propane and butane are both used as a petrochemical feedstock in the production of ethylene, among other things, and propane is also used as a heating, engine and industrial fuel.
Feedstock made from cheap natural gas versus the more expensive crude oil is proving a boon for the petrochemical industry.
Due to an “improved outlook for U.S. natural gas supply from shale,” Dow Chemical is building an ethylene plant in Louisiana and re-starting its ethylene facility near Hahnville, La.
Shell, which is building a new petrochemical refinery in Pennsylvania for access to Marcellus shale NGLs, is also looking at a $10 billion Louisiana plant to convert natural gas to diesel.
In North Dakota, Oneok Partners has joined Plains All American in rolling out plans to cash in on Bakken natural gas, a chunk of which is being flared, recently announcing the first phase of a 270-mile gas gathering system and related infrastructure, which followed Plains’ decision to build a natural gas processing plant at Ross.
Oneok, which is planning to invest up to $1.8 billion in Bakken projects over the next three years, has said the projects it announced in 2011 and 2012 will accommodate the growing NGL supplies in the Mid-Continent and help alleviate the infrastructure constraints between it and Gulf Coast markets.
In the Permian basin Apache is producing so much oil and associated natural gas and gas liquids that it has partnered with Crosstex Energy to build an $85 million natural gas processing plant to avoid flaring wasted gas. Crosstex in turn has bought and upgraded a nearby railroad terminal to transport the gas liquids to Louisiana for petrochemical refining.
In the latest Fortune Hunt, Don Logan, president of the Louisiana Oil and Gas Association, was quoted as saying, “low-cost natural gas is the elixir, the sweetness, the juice, the Viagra. What it’s doing is changing the U.S. back into the industrial power of the day.”
So, taking a few steps down the value-added chain, as Warner asked Kringstad, could a petrochemical industry along with a “more aggressive manufacturing sector” be a possibility for North Dakota?
In that same Fortune Hunt issue U.S. Steel CEO John Surma was quoted as saying, “The discovery and development of North America’s shale resources has the potential to be the most remarkable source of economic growth and prosperity that any of us are likely to encounter in our lifetimes.” Surma said “it’s a virtuous cycle: More drilling requires more steel, and lower energy costs give U.S. steel producers a cost edge. This at a time when the Department of Energy reports that the energy intensity of U.S. steel companies is now among the lowest in the world.”
In Louisiana’s St. James Parish, Nucor Steel broke ground last year on a $3.4 billion steel plant, the first major facility built in the U.S. in decades, Fortune Hunt reported.
U.S. Steel is also investing in a new facility in Lorain, Ohio, and V&M Star Steel plans to spend $650 million on a small-diameter rolling mill in Youngstown, Ohio, the publication reported.
But what about producing steel or other goods in North Dakota, especially western North Dakota, which is already having problems getting its raw products to market and finding enough workers, despite above-average wages?
Kenneth Otto said that from a “hydrocarbon perspective there’s plenty of hydrocarbons to support some level of petrochemical facility in the state or the region.”
But the discussion is whether or not North Dakota is the “optimum location,” he said.
Some would contend “western North Dakota is not the easiest place to build an industrial infrastructure. It‘s somewhat analogous to Alaska, to the state there trying to entice a petrochemical industry to Alaska, based on North Slope hydrocarbons,” he said, noting the effort had not been successful.
That said, North Dakota, Otto pointed out, “is closer to markets for petrochemicals, but Ohio, West Virginia and Pennsylvania are probably better situated — and that’s where companies are looking at siting some new facilities, taking advantage of Marcellus NGLs.”
Still, Otto did not rule out the possibility of North Dakota being successful in securing value-added petrochemical plants or refineries, noting both had the support of the state.
“But then the state of Alaska also supported them — so does Ohio, West Virginia, and Pennsylvania,” he added.
—Kay Cashman
