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Americas Energy CEO Series: Bill Prentice, Meridian Energy

Meridian Energy expects to break ground on its new North Dakota refinery in March and be operational by the first quarter of 2019, CEO Bill Prentice told S&P Global Platts.

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It has been a longer journey than expected to build the refinery due to slower-than-expected permitting process, he said in an interview.

Meridian announced the project in December 2015, planning on building a 55,000 b/d refinery in the heart of North Dakota's Bakken shale formation. At that time, groundbreaking was expected to begin in early 2016 with completion of an initial 20,000 b/d of processing capacity in late 2017.

After receiving the key air quality draft permit to construct for minor source emissions from the North Dakota Department of Health in December, Prentice hopes to receive the final permit in early February after the public comment period for the draft permit expires January 26.

While there are a "couple of dozen" other permits needed, none are out of the ordinary, he said. The first phase of the refinery is expected to be built and mechanically complete by the end of 2018 and operational in the first quarter of 2019, Prentice said.

"This delay has cost us a lot in terms of what we have to do," he said.

SILVER LININGS FROM PERMITTING DELAYS

Chafing at the time and expense the delay has cost Meridian, Prentice said the longer lead time had some upside.

Meridian expected permitting to take about four months based on the amount of time it took the state's last new refinery, the 20,000 b/d Dakota Prairie refinery in Dickinson, to complete permitting.

But Prentice allows that the delay gave Meridian the opportunity to think about the best design for the refinery and adapt it to meet the those needs.

"I'm in favor of small refineries targeted to a specific crude and a specific market," Prentice said.

Original plans called for the refinery to run some heavy Canadian crude, but the plant will now run only light sweet Bakken crude.

"It kind of goes against my philosophy to say this, but the delay has actually benefited us in many different ways. The engineering is a lot more solid," he said. "I've spent more money on engineering this project than I ever have before on a project at this stage.

"We have made a lot of improvements in our design which we probably would have not been able to address till later and maybe not even caught them at all," he said.

Supplying the refinery should not be a problem. North Dakota crude production has risen this year, to 1.19 million b/d in October from 983,840 b/d in January, North Dakota Pipeline Authority data shows.

The bulk of that production — 79% — was exported by pipeline in October, with 7% was refined locally.

"We like shale plays. We don't like being located where we have to worry about even two different types of crude running through our plant," Prentice said.

The draft air quality permit allows for two crude distillation units of 27,500 b/d each. However, it is unlikely Meridian will expand to the full permitted capacity of 55,000 b/d in the second phase.

"That's not the best-engineered solution when you look at Bakken crude," Prentice said.

Bakken is a light sweet crude which has a higher vapor pressure than crudes which are not produced by fracking.

"We are going to go with 27,500 b/d to start with. That's just a hydroskimmer. And then we go full conversion up to about 49,000 b/d," he added, speaking about the second phase of construction.

"Then we will see where we are on emissions for everything. But we may never expand the plant beyond that. We may look at other things, see where our resid is at that time. We might look at lube oil," he said.

Another design change is the first phase of the refinery will not have a gasoline-making fluid catalytic cracking unit, but rather a less-polluting 16,128 b/d catalytic reforming unit which will be able to convert low-octane naphthas into higher-octane reformate for blending.

The first phase will also have an 18,205 b/d naphtha hydrotreater and a 14,380 b/d hydrocracker.

Assuming the first phase is mechanically complete by 2018, "we start construction on the second phase in 2019," he said.

OTHER SHALE AREAS TO BE CONSIDERED

The streamlining of Meridian's design has not gone unnoticed among others looking to build refineries in growing shale producing areas, such as the Permian Basin and Eagle Ford.

"We have already been asked to look at a couple of areas where a major producer wants to have a refinery like this," Prentice said. "Our guys have a pretty extensive list and the ones that are highest on the list are here in the US and in Mexico."

Some producers like to have local demand for their output and team up with refiners, who get dedicated supply. Recently, Andeavor teamed up with a producer of Uinta waxy crude to provide supply for its Salt Lake City refinery.

"We have been forced to become expert in figuring out the minimum economic size for a full-conversion refinery that can be a minor source under air quality," Prentice said.

A minor source air quality permit is easier to get under Title V air permitting regulations because it allows for less pollution than a larger complex refinery. The Dakota Prairie refinery in Dickinson was the first US refinery built since 1977 and the first to get a minor source air permit.

"That's our intellectual property and we are going to use it elsewhere," he added.

Meridian's refinery is the furthest along of the three new refineries being built. All three are small and located in shale growth plans.

MMEX Resources in late November said it began construction of a 10,000 b/d crude distillation unit at a new refinery in Pecos County, Texas, in the western Permian Basin, according to local media.

In the Eagle Ford, Raven Petroleum is also planning to build a 50,000 b/d refinery in South Texas. No permits have been filed for the plant which is well-positioned to supply gasoline and diesel to recently deregulated oil markets in Mexico.

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