A new refinery: a boost to America? (Platts)
Is it an act of patriotism or a business venture? Perhaps it is neither. But one thing seems certain about the unusual announcement last week by a small Dallas energy company hoping to attract $8 billion to build the first new US refinery in 30 years. More questions were raised than answered in all the hoopla. Company executives were careful to bang the twin drums of environmentalism and patriotism loudly in their announcement. Instead of talking about privately-held Hyperion's opportunity to prosper from this venture, former Marathon refinery veteran Corky Frank touted the country's need in his statement, noting that "gas prices are the highest in US history and the US refining infrastructure hasn't seen a significant change since 1976."
You could almost hear the "Star-Spangled Banner" playing in the background as he announced: "We believe there's a growing belief among people in this country that North American oil should stay in North America." He added: "Our proposal addresses all those issues and does it in a way that has never been done in this country. Hyperion is ready to step in to fill this need for additional refining capacity."
The reference to North America centered on the refinery's planned feedstock, which is Canadian crude coming via pipeline. For years, conventional wisdom was that if a refinery was to be built in the US, it would need to be on a coast, to access waterborne crude. But the growing supplies of Canadian oil from Alberta, and the oil sands in particular, may turn that equation on its head.
During a town hall meeting in Elk Point, South Dakota, Hyperion's Preston Phillips assured residents that, of course, the Hyperion 400,000 b/d refinery would be the "most environmentally sound energy center in the United States."
Hyperion conducted that town hall meeting to end months of speculation about its top secret land acquisition program in the area, a campaign the locals had dubbed the "gorilla project." One newspaper had sponsored a contest with a prize for the first entrant to correctly predict the nature of the project. And another discovered that Hyperion already had registered Web domain names of hyperionelkpoint.com and hyperionsd.com.
Meanwhile, a local businessman with property adjacent to acreage sought by Hyperion started his own Web site called "Elk Point Gorilla" to serve as a clearing house for speculation.
Once the announcement came down, however, the industry reaction might best be described as almost a collective: "Say what?" Despite the presence of refining heavyweights such as Frank, one observer quickly challenged the view that a small operation such as Hyperion could succeed where deep-pocketed corporate behemoths such as Saudi Aramco have failed. "Who would invest in this?" one asked.
Others noted the global nature of the refining business and wondered aloud about the relevance of a new refinery for the US. And giants such as ExxonMobil and Shell have well-documented expansion programs that add the equivalent of a new refinery regularly through enhancements to existing facilities.
Refinery consultant Malcolm Turner offered odds of 50-50 that a new refinery would ever be built again in the US, admitting with a laugh that he's the optimist among his own colleagues. He noted that the most recent project, Arizona Clean Fuels, has struggled for 20 years to get the proper permits and funding while saluting that effort as at least located in an urban market. (It's near Phoenix).
So, the Hyperion announcement has come straight out of left field for most industry observers. It has left them wondering what might really be going on with Hyperion and its land acquisition program in South Dakota. And it will remain a project closely watched in the weeks and months ahead.
Posted by Gary Taylor on June 19, 2007 11:54 AM | http://www.platts.com/weblog/oilblog/2007/06/a_new_refinery_a_boost_to_amer.html