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North Dakota Primed for PetChem Development, Analyst Says

In an industry in which low-cost feedstock is key, North Dakota's wealth of natural gas liquids (NGL) makes the state a natural candidate for the development of downstream opportunities in the chemicals industry and all of its offshoots, a researcher/consultant said Wednesday at the Williston Basin Petroleum Conference in Bismarck, ND. Ultimately, the model is to do what Alberta, Canada did two decades ago and bring in global partners already in the chemical business.

To thrive in the chemical industry and its offshoots, control of a feedstock is essential, said Don Bari, a vice president with IHS Inc., which has completed a detailed study of North Dakota NGLs that is to be released with a presentation in Bismarck in June 5.

Bari, who specializes in chemical industry studies for IHS, said companies that try to get into a part of the chemicals value chain without having feedstock are doomed to failure. "You always need a good feedstock position," Bari told the Williston conference participants. "The 'Golden Rule' is that those who own the feedstock own the Rule. So this [feedstock production] is a great position for the Bakken."

The three key chemical feedstocks -- ethane, propane and butane -- are found in abundance in the Williston Basin's liquids-rich light crude oil. "The Bakken has the answer [for chemical industry outlets] because it has all the NGLs," said Bari, whose presentation stressed there are many opportunities to add value to Bakken hydrocarbons through the chemical sector.

Typically the NGLs are processed for shipment out of state to other markets that realize the value of the Bakken crude's liquids. This is happening at a time when the demand for petrochemicals is growing at a much faster pace than energy demand in the United States, which is around 1%. Global petrochemical demand is growing at 4%-5% annually, Bari said.

"The Bakken high [30%] liquids content is an extremely good advantage here in North Dakota," Bari said. "And if you think about the global petrochemicals market, currently about 25% of those total supplies are made up of ethane, propane and butane."

The extrapolation is that North Dakota could help fill the growing demand for petrochemicals, and NGLs could become another "pot of gold" for the state, according to Bari's analysis. He starts from the point of view that the state has low-cost feedstock, which is essential in this case. Today, much of the NGL-related products are supplied by the Gulf Coast and shipped around the nation by rail, but North Dakota could shift the paradigm, according to Bari.

"The rail system from North Dakota to major eastern and central markets is competitive with supplies from the Gulf Coast in terms of transportation costs," he said. "The petrochemical business in Alberta Canada was based on the same premise we have now [for North Dakota]; it's a model of an industry that could be developed here [in North Dakota]."

For the period of 2020 to 2035, Bari's analysis shows that most petrochemical projects would be economically viable in North Dakota. With the projected global demand for petrochemicals, the room  for added capacity is "always there, we're not really replacing anybody," Bari said.

"The bottom line is that we believe it can be successful if North Dakota brings in some world-scale partners who are already in the chemical business."

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