Two weeks ago, Bill Gilliam was standing on a stage with North Dakota Gov. Jack Dalrymple, announcing that a venture called Badlands NGL wants to build a petrochemical plant in the state.
The factory would make plastic from ethane, the cheap, abundant component of natural gas that rises from the same wells that produce oil in the Bakken. Natural gas in North Dakota is especially high in ethane content (see page 39), and Gilliam thinks he can figure out a way to get enough of it in pure form to start cranking out train car loads of plastic beads for industrial use.
A lot has to happen between now and then. 28 percent of North Dakota's natural gas was burned off in August and both ethane producers in the state pipe it out of the state. Such a project would signal a shift in North Dakota. Along with two proposed fertilizer plants, it would mark the beginnings of a chemical industry in the state.
I talked to Gilliam on the phone earlier this week for a story that’s running on Sunday. Most of what he said didn’t make it into the story, so I’ve taken portions of the interview and reproduced them here.
Q. Is there enough ethane being produced in North Dakota currently to meet Badlands’ needs?
Gilliam: “Way more than enough. If you look at current production in publicly available materials, we’re looking at in the range of over 200,000 barrels a day being produced and most world-scale polymer plants on the Gulf Coast need in the range of 75,000 barrels a day. We may use a little bit more or a little bit less than that. We certainly think that this is a facility that would expand over time. If you look at publicly available information for the Northern Border Pipeline system, which certainly has a small amount of ethane coming down from Canada, but is composed primarily of ethane that is contributed in the Williston Basin, beginning in June and looking at it every day, from a low of 70,000 barrels a day it went as high as 114,000 barrels a day in August and it slacked off a little bit to around 90,000 barrels a day recently. So there’s plenty of ethane there.”
Q. And this is pure ethane that’s been isolated?
Gilliam: “It’s not isolated. It’s mixed in methane and obviously the issue that shippers and pipelines and everyone is concerned about is you put too much ethane in any interstate pipeline and it gets too hot for allowable regulatory and safety limits.”
Q. Does the Tioga plant figure into your plans. I thought it was the only plant producing pure ethane in the state?
Gilliam: “That is correct. It’s a new plant and it is capable of producing ethane, and at least we understand that for all of the Hess acreage that’s dedicated to that plant, it produces 95 percent ethane that goes to Canada in the Vantage pipeline.”
Q. So you won’t be hooking into that supply?
Gilliam: “We understand that over time, Hess has committed to selling its ethane supply to Nova in Alberta. We think that’s probably in the range of 15,000 barrels a day right now.” (this is roughly accurate, according to the North Dakota Pipeline Authority)
Q. The plant that you are proposing to build will not produce ethane itself, right? You’ll have to pipe the ethane in?
Gilliam: “Well, we think that a separate gathering and aggregating business that is going to involve picking up mixed gases or pure gases or even Y-grade is going to be important. Here is an important distinction that I don’t think a lot of things get written about: Right now, the majority of the ethane that’s produced in North Dakota goes to two places and only two places. It goes into WBI’s intrastate system, and it goes into the Northern Border interstate system. If you say, well, hey, if you build this plant, why don’t all gas processing plants just start making ethane and giving us ethane. Well the answer is one or two of the newer ONEOK facilities and the Hess Tioga facility are new enough and modern enough to actually make the separation between methane and ethane. The vast majority of the ethane that’s being produced in the Williston basin right now comes from gas processing plants that can’t make that separation.”
Q. You said the plant would either be in eastern or southern North Dakota. Can you give any more color on that?
Gilliam: “I can’t give a lot of color on it, other than to say that access to multiple rail providers is important. Certainly access to a dynamic workforce, educational system, all of the standard stuff certainly is important. The determining factor is with the partners that we join with in terms of aggregating ethane, figuring out which way not just ethane but other gases should flow, is an important consideration. That is probably going to say it should be here or here, and then you start looking at is there a determinant that says, gosh, it really has to be here in terms of the way things flow. If it’s kind of indifferent, then you say, well is there a better rail alternative in one area, is there a better workforce alternative in this area? But really it’s going to be determined by how ethane flows.”
Q. Can you walk me through the fundraising process? What’s the next step? How much do you have to raise? Who’s involved?
Gilliam: “I’m not going to get into a lot of detail on that because I haven’t. What I can indicate is, we’re talking about $4 billion to $4.2 billion, we are going to get a substantial amount of senior secured debt. The engineering company that we’re working with, Tecnicas Reunidas, has had just an unbelievably great track record, as have other engineering companies that we’re working with, in getting export credit agency – ECA credit facilities. We’ll have a lot of Italian content or German content or even with this Spanish-engineered Japanese content. Just like the Ex-Im Bank of the United States, the export credit agencies give you sovereign credit guarantees, so that you basically can say we believe that virtually all of the $3 billion of debt that we think we might need, we can get through export credit guarantees, which means that it’s just bullet-proof senior debt financing.”
Q. Guaranteed by like the Spanish government? Am I understanding you correctly?
Gilliam: “The Spanish government, the Italian government, the German government, the EU in certain cases, yeah. Here’s the simplistic thing. You go to the airport, you see a lot of airplanes made by Boeing, you see a lot of airplanes made by Airbus. American airline companies buy Airbuses, and it’s not because they’re better planes than Boeing. They like the financing terms from the EU, and certainly, we’re using a Spanish contractor, and we have other contractors from Europe that may be doing subcontracting work with Tecnicas Reunidas. Tecnicas Reunidas has done 85 percent financing for this huge petrochemical complex in Turkey. They’re getting export credit stuff for projects in Bolivia. It’s our opinion that getting export credit guarantees for our project in North Dakota’s a walk in the park compared to some things.”
Q. You’ll be employing 500 people permanently at the plant, correct?
Gilliam: “Not less than, and in fact maybe even more. But let me just qualify and say that’s a number in North Dakota that’s going to include folks at a headquarters in Bismarck as well as the folks at the facility.”
Q. Why is the Bakken not a good place for the plant? Is it the costs of construction? Labor?
Gilliam: “The two factors are how difficult and busy is it to be trying to do things in the middle of a place where you can’t even rent a hotel room, and the second thing is which way does the ethane flow? Believe it or not, even though the first thing is a complication, if that were the only factor we would certainly consider any place in the basin. But it’s not. We believe that the way that you efficiently gather ethane is you need to be at the tail end. Either in the northeast or the southwest part of where the basin goes because that’s the way the gas flows.”