MDU Resources’ plans for a second refinery in North Dakota are being put on hold after a volatile mix of market conditions — largely paced by low oil prices — led the Dakota Prairie Refinery west of Dickinson to post larger-than-expected losses in 2015.
The company said in late 2014 that it had planned to build a second greenfield refinery in Minot. In its latest capital investment report filed Nov. 17 with the Securities and Exchange Commission, MDU Resources stated capital expenses for a second refinery had been removed from its forecast as it “focuses on optimizing its current refinery investment.”
“Once we reach the point where we can sit back and say this (the Dakota Prairie Refinery) is an optimized facility and it’s producing like we want it to be, then we’ll look at expansion,” MDU Resources public relations manager Tim Rasmussen said Thursday.
Rasmussen said MDU Resources views the $425 million Dakota Prairie Refinery as a long-term economic asset and understands how susceptible it is to market fluctuations.
“Through the life cycle of this facility, we’re going to experience lots of peaks and valleys in commodity prices,” he said. “That’s how we view it. It’s a long-term investment. This is part of the reality of operating a refinery. We knew that going in. It’s unfortunate it had to be at a low cycle right at the beginning, but it’ll come back.”
The cost of operation and maintenance rose when the facility came online in May 2015, MDU Resources stated in its SEC filings.
During less than seven months of operation in 2015, the Dakota Prairie Refinery has operated at a loss of $12.6 million. It’s third-quarter losses totaled $5.8 million. It had a $1.5 million loss in 2014, according to SEC filings.
The refinery’s opening earlier this year coincided with the prolonged downturn in crude oil prices. When the project was conceived and as it neared the end of construction, prices ranged from $80 to $120 a barrel. When oil prices began dropping in late November 2014, Rasmussen said MDU Resources took the changing market into consideration.
“We knew as we saw the commodity prices decrease that our refinery would have some financial challenges,” he said.
The 20,000-barrel-per-day topping plant and first greenfield refinery built in the U.S. since 1976 is jointly owned by MDU Resources, WBI Energy and Calumet Specialty Products. The refinery produces 7,000 bpd of diesel fuel, 6,500 bpd of naphtha and 6,000 bpd of atmospheric tower bottoms.
The refinery is shut down this week as maintenance is conducted on a hydrogen unit — which produces hydrogen, and provides purity and clarity for diesel — but is scheduled to come back online next week, Rasmussen said.
Despite the maintenance, he said the refinery is “operating well” and is producing the expected amount of diesel fuel, which is sold throughout western North Dakota. The refinery’s posted diesel prices ranged from $60 to $80 per barrel during the third quarter, according to SEC filings.
The naphtha it produces is being railed into Canada to be used as a diluent for tar sands production, according to SEC filings.