About the same time that the North Dakota legislature was approving an incentive aimed at attracting a plastics plant, a previous suitor filed for Chapter 7 bankruptcy in a Colorado court.
The suitor was Badlands NGLS, whose CEO William Jeffrey Gilliam had proposed investing $4 billion to build a polyethylene manufacturing facility in North Dakota in 2015. About a year later, he also announced plans for an alpha olefins plant in the Gulf Coast. Alpha olefins are a versatile feedstock for manufacturing polymers, surfactants, synthetic lubricants, petroleum additives and more.
Williams had proposed taking advantage of physically stranded NGLs in the Bakken. An investor presentation from the time noted that NGL takeaway needed to double by 2020, or it would exceed heat content limits on the Northern Border pipeline. That was then the only pipeline taking significant amounts of NGLs to market.
Ron Ness, executive director of the North Dakota Petroleum Council, said that timing was one thing that hurt the Badlands NGLs project.
“The (Badlands) project was maybe a bit ahead of its time, but right in concept,” he said.
There was the big downturn in price in 2015, which dampened activity for a couple of years. With no sign of excess ethanes being processed, the company turned its attention elsewhere.
ONEOK has since proposed a new pipeline capable of taking up to 240,000 barrels per day of unfractionated NGLs to market, from Montana to existing facilities in Kansas.
That has been lauded as a key component to reduce natural gas flaring in the state, but it doesn’t add value to the product, like processing it in North Dakota would.
That is the problem that North Dakota Department of Commerce Director Shane Kessel is hoping can be solved this time around.
“Badlands was two steps away (from a plastics plant),” Kessel said. “So I think that is the difference. We don’t have the facilities yet, but the company we are working with today is proposing to build that intermediate step.”
Once that is done, Kessel believes that will make North Dakota “ripe” for the next step, the plastics plant itself.
“The amount of gas we are producing far exceeds the needs of a petrochemical plant as we understand them,” he said. “And the amount of natural gas production as a percentage is going higher, so it appears we will have enough supply for enough years to make a petrochemical industry very attractive in North Dakota.
Ness agreed with Kessel’s assessment.
“Timing is everything in business,” he said. “Along with the new gas production curves and lessons learned, we certainly hope the next project is successful. The addition of a major value-added natural gas industry in North Dakota could be the next leg of the state’s economic stool.”
What it will take
Many of the petrochemical plants built in North America recently have landed in Texas and in Alberta, Canada.
Kessel said the state has reviewed the incentive packages those areas are offering, as well as the headwinds working against North Dakota’s effort to bring the plastics industry here.
“If you look at Alberta, they have a workforce there that is trained and available,” he said. “And you also have a conversion factor between the Canadian dollar and the U.S. dollar that favors Canada right now.”
Minus the currency incentive, Texas has similar advantages.
“There is infrastructure there,” Kessel said. “They have workforce working in the industry, so it is a little easier to have them move to a new facility.”
Perhaps the biggest common denominator, however, is a lucrative incentives package.
“We have collected the incentives in those locations and are comparing them to what we are able to offer here,” Kessel said. “And we are going to model (the incentives), as well as the impacts of both these steps, and how they could affect North Dakota in a positive way. So we can better ascertain a return on investment.”
The legislature’s renewal of its tax incentive, with the additional inclusion of midstream production, will be helpful, Kessel believes.
“It’s going to help us be competitive with the marketplace,” he said.
Where the plant might live
Right now, the company Kessel is working with is “on the precipice of site selection,” as well as making a list of partners. He’s not able to say who the company is yet, but talked a little about their efforts so far.
“Facility size is something they are working on right now,” he said. “They are in discussion with partners, and until they have a final list of partners, that will determine the size.”
It will take more than just partnerships with the state, however, to make the project happen. It will also take partnerships with local governments.
“They are going to need things like collection pipes,” Kessel said. “They are going to need rail facilities eventually. They are going to need workforce, and a geology, because both of these steps will require underground storage. So they will need appropriate geology in place to help them with that.”
Kessel anticipates the site could be as large as 1,000 acres. That will be an additional challenge, to find that much green space adjacent to railroads, workforce, and adequate water.
Kessel suggested the company is two weeks out from making an official announcement, but even if the announcement were tomorrow, an ethane refining plant is probably at least three to four years out.
Still, he is confident that this go-round can be successful. The timing is right, and the players have what it takes to get the job done.
“The players involved in this are experts in their fields,” he said. “They have been doing this type of work a very long time. They have partners who have constructed facilities like these, the precursor to petrochemical facilities, so they are positioned very, very well to get the job done.”
Changing global dynamics
North Dakota has always had the necessary feed stock for an ethane processing plant, but Kessel and other state officials believe it also has worldwide dynamics going for it as well now.
“I can tell you that petrochemical companies are starting to build in North America much more frequently than they are building elsewhere,” Kessel said. “The petrochemical companies we have met with have absolutely said they are willing to build another facility in North America.”
In fact, one is being built now in Pennsylvania, Kessel added.
Energy analysts also seemed to like the idea of a petrochemical industry in North Dakota.
“A plastics manufacturing operation in the Bakken region would have significant cost advantages in the form of discounted ethane available for chemical feedstock, and then also discounted natural gas to fuel the energy-intensive operations and cracking furnaces,” said Greg Haas, with Stratas Advisors.
The additional economic activity and capture of natural gas would also benefit the region and the industry as a whole, Haas said.
“The only fly in the ointment would be what to do with the product, ethylene,” he said. “If the region also invested in polyethylene manufacturing the pellets or billets could be railed to Alberta or Fort Worth, or other regions, for further delivery to North American or even Pacific Rim economies. The revenue side is the question that I think any project developer in North Dakota will have to have a compelling answer for investors and other future stakeholders.”