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Study: ND Refinery Should Produce Diesel, Not Gas

A proposed 34,000 barrel per day refinery would produce diesel fuel and naphtha, and offer a better projected return on investment and a lower operating cost per barrel of oil processed.

BISMARCK, N.D. (AP) ‚ÄĒ A new North Dakota oil refinery would have a better chance of success if it was small and produced diesel fuel instead of gasoline, according to a consulting group's preliminary analysis.

Kurt Swenson, a vice president for the Corval Group, said a refinery would cost between $650 million and $700 million to build, depending on whether it was designed to process 20,000 or 34,000 barrels of oil daily. Construction would take at least 16 months, and Corval's analysis estimates it could be finished by December 2015.

Swenson recently briefed state legislators on Corval's preliminary analysis. Its final report is to be presented to a state legislative committee on energy development in October. The study is being financed by a $461,000 U.S. Energy Department grant obtained by Democratic Sen. Byron Dorgan and administered by the North Dakota Association of Rural Electric Cooperatives.

The 34,000 barrel per day refinery design has the better projected return on investment and a lower operating cost per barrel of oil processed, Swenson said. It would manufacture diesel fuel and naphtha, a chemical that can be used as a solvent, a gasoline additive, or for lighter fluid and cooking fuel.

Swenson said there is a ready market for naphtha in Canada, where it is used as a thinner to make oil sands mined in Alberta province easier to ship through pipelines. It could be shipped north by train, he said.

"The Canadian market for naphtha is a long-term market. It has been well-established. It's very transparent on (prices)," he said. "The transportation systems ... are in place."

North Dakota produces 321,000 barrels of oil daily. The state's production has more than tripled since January 2006, state Department of Mineral Resources statistics indicate. The increase has been spurred by development of oil shale rock formations in western North Dakota.

The state has one oil refinery, Tesoro Corp.'s facility near Mandan, which processes about 58,000 barrels of oil daily. North Dakota's rising oil production, which is expected to top 400,000 barrels daily next year, has prompted increased interest about encouraging construction of additional refining capacity in North Dakota.

Swenson said the Tesoro refinery already produces more gasoline than North Dakota customers use, and gasoline consumption in the state is flat. In contrast, demand for diesel fuel is rising, and the state has to import large amounts to satisfy it, he said.

"We are, worldwide, transitioning much more towards a diesel-based economy," he said. "Our gasoline consumption is trending downwards ... We feel very confident that the diesel consumption will continue to grow."

Swenson said the market analysis indicated a new refinery that produced a standard mix of gasoline, diesel fuel and jet fuel would have difficulty making money no matter what its size.

However, "the economics are overwhelmingly better" for a refinery capable of processing 34,000 barrels of oil daily, with production split between diesel fuel and naphtha, he said. It also would be less expensive to build because costly equipment needed to produce gasoline would not have to be installed, he said.