APPENDIX D

North Dakota Refining

Capacity Feasibility Study
Energy Development and Transmission
Committee 9/16/2010

1
 Introduction
Premise
– Independent study to determine feasibility for adding additional
crude oil refining
g capacity
p y in North Dakota
– Funding through Department of Energy
– Administered by NDAREC
– Two Phases

Team
– C
Corvall Group
G
– Purvin & Gertz (PGI)
– Mustang Engineering

2
Refining Capacity Feasibility Study
Phase I – 100,000 b/d, 50,000 b/d, 20,000 b/d
Marketing Study
– Transportation analysis (crude and refined product)
– Refined Product pricing (capacity is key factor)

Crude Oil
– Availability
a ab y a and
d Pricing
c g forecasts
o ecas s

Partnerships
 Production – Williston Basin
500
Thousand Barrels per Day
• High potential for
continued growth of
supply
400
Cumulative Takeaway
Capacity and Local Demand
with expected expansions

300

200

100 Enbridge (ND+Eastern MT)

PGI (ND+Eastern MT)
ND DMR (Bakken Max - ND Only)

0
1990 1995 2000 2005 2010 2015 2020 2025

April 23, 2010 4

 North Dakota Gasoline Balance
(Thousand Barrels per Day)
50
• Product transfers are
Production Net Transfers/Imports Consumption essential to North Dakota’s
40
refined product balance
– The market balances
30
on nett transfers
t f outt off
the state
20

10

-10

Note: Production + (Transfers In - Transfers Out) = Consumption

-20
20
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

April 23, 2010 5

 North Dakota Diesel Balance
(Thousand Barrels per Day)
50

Production Net Transfers/Imports Consumption

• The diesel market
relies on increasing
40 net transfers into
North Dakota.

30

20

10

Note: Production + (Transfers In - Transfers Out) = Consumption

0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

April 23, 2010 6

 Phase II Goals
• Identify the most feasible alternative for increasing the refining
capacity in North Dakota

• Recommend a refinery configuration, estimate the capital cost,

develop schedules, predict financial returns and perform a sensitivity
analysis.

• Develop plot plans, emissions estimates and site selection

requirements.

• Macroeconomics, regulations

• Barriers and Incentives to enhance project economics

7
 Phase II (cont)
• Phase II was authorized with a modified scope of study.

• 20,000 BPD case was selected in place of the 100,000 BPD case
due to lower market impact

p that maximized diesel fuel

• An alternate case was developed
production to meet the market need in North Dakota.

– The alternate case eliminated the p production of g

gasoline in favor
of naphtha, eliminating the capital investment required to make
gasoline in a market where current supply exceeds demand.

8
 Phase II Configurations
• 20,000 BPD Case
– Integrated refinery producing full slate of products
– Numerous process units
• Crude/Vacuum
• Kero/Diesel Hydrotreating
• Hydrocracker
• Naphtha Hydrotreating
• Naphtha Reformer
• Light Naphtha Isomerization
• Benzene Saturation
• 34,000 BPD Diesel / Naphtha Case
– Diesel product focused, limited process units
• Crude/Vacuum
• Kero/Diesel Hydrotreating
• Hydrocracker
9
 Market
M k tRReview-Canadian
i C di
Naphtha/Diluent
• Naphtha is used as a diluent for pipelining Bitumen (heavy crude).
• Growth in the Canadian bitumen production has created a demand
for naphtha.
• Canadian import of hydrocarbon streams such as naphtha is the
most expedient short term option for increasing the supply of diluent
to meet the demand created by the growth in bitumen production.
FIGURE 3
CONDENSATE AND NAPHTHA SUPPLY
Thousand Barrels per Day
600
Imports
500
Upgrader / Refinery Naphtha
400 MacKenzie
BC
300
Alberta
200

100

0
1990 1995 2000 2005 2010 2015 2020 2025 2030

10
LP M
Modeling
d li Yields
Yi ld
• 20KBPD
– Gasoline,
G li jjett and
d di
diesell yield
i ld
is 92.3% of refinery charge.

• 34KBPD
– Jet and diesel yield is 51.6%
of refinery charge.
– The full
f production off naphtha
(combined light and heavy) is
assumed to be sent to
Canada by rail.
rail

11
C it l Cost
Capital C tAAnalysis
l i
• Accuracy 40%
• Location factor estimated at 1.15
versus USGC.
• Owners costs (spare parts,
permitting, land, management,
studies, etc.) are estimated to be
15%.
• Contingency
C i estimated
i d to b
be
15%.

12
O
Operating
ti Cost
C t Analysis
A l i
• Larger refinery has fixed cost
economies of scale.
• Variable costs in the 20
KBPD case are higher
g p
per
barrel due to the increased
complexity.
• Operating Cost for both
cases are higher per barrel
than typical large USGC
refineries.

13
 Project Schedule Analysis
• Three milestone schedules: best, probable and worst case cases.
• Critical factors for probable case are:
– Organization and commercial development completed during
1Q 2011
– Funding for initial engineering (FEL) activities available by Jan.
1 2011
1,
– Time between finish of FEED and selection of EPC contractor is
4 months
– Construction period 16 months
– Probable case completion – 4th Qtr. 2015

14
 Taxes and Depreciation
• Taxes:
– 5 year property tax exemption.
– 5 year income tax exemption
exemption.
– 35% federal and 6.4 % state tax rates
– Sales Tax exemption on the equipment, materials and tangible
property
t for
f the
th initial
i iti l construction
t ti was nott iincluded.
l d d

• Depreciation
– MACRS (Modified Accelerated Cost Recovery System) –
double declining balance over 10 years.

15
 Cash Flow Results
• Internal Rate of Return and IRR Result

– Real returns are discounted to 2010 dollars

dollars.
– Nominal returns are not discounted.
– All cash flows are on unleveraged basis.
– 20 000 BPD R
20,000 Results
lt
• Real IRR 1.6%, Nominal IRR 3.7%
– 34,000 BPD Results
• Real
R l IRR 7%
7%, N
Nominal
i l IRR 9
9.2%
2%

16
 Final Phase – Next Tasks
• Plot plan of the refinery
• y balances
Utility
• Emissions estimates
• Site selection requirements
• Barriers and incentives that could enhance the project
• Benefits to North Dakota
• Final Report – Present early October

17