For one-third of a century, refinery construction projects in the United States have entailed expanding or upgrading existing facilities. Not since Marathon began operations at its Garyville Refinery in Louisiana in 1976 has a refinery been built from the ground up. Dallas-based Hyperion Refining, LLC, however, is on the cusp of ending the lull in domestic grassroots refinery construction.
Last month, the South Dakota Board of Minerals and Environment unanimously approved Hyperion's request for an air permit to operate its planned Hyperion Energy Center refinery complex in the southeastern corner of the state. According to Preston Phillips, Hyperion's Project Executive and Vice President, securing the vital permit has been the most challenging regulatory victory since the independent refinery project was announced in 2007. Before Hyperion can break ground, however, it must still obtain non-air state permits relating to water rights and water discharge. In addition, the company must file its application for a Section 404 wetlands permit from the U.S. Army Corps of Engineers. "We're very confident from our discussions with the state and with the Army Corps of Engineers that we'll get those," said Phillips, who joined Hyperion in 2002 and has a bachelor's degree in electrical engineering and an MBA from Texas A&M University and the University of Texas at Austin, respectively.
Refiners have been cutting costs throughout the current economic downturn, and many industry observers foresee more consolidation. Refinery utilization has been trending downward, and some fear that it has yet to bottom out. For instance, the CEO of independent refiner Valero told investors earlier this month that a decline from the current low-80% range to the 70% range is a distinct possibility. Moreover, the healthy "crack spreads" refiners have enjoyed in recent years by processing heavier crude slates rather than more expensive lighter crudes have largely evaporated. Given this environment, one may question why Hyperion even wants to build a 400,000-b/d refinery.
"Long-term, there's a significant need for new heavy refining capacity in the U.S. as we trend toward heavier slates of crude," said Phillips, who believes that owners of large full-conversion refineries such as Hyperion's stand to benefit from consolidation. "If anything in an economic downturn, it will potentially hasten the closure of less complex refineries."
"Long-term, there's a significant need for new heavy refining capacity in the U.S. as we trend toward heavier slates of crude."
Phillips also pointed out that PADD 2 – the U.S. Department of Energy district that encompasses 15 Midwestern states – is deficient in gasoline, diesel, and other oil products. "We import about 1 million barrels per day of refinery products into the PADD 2 District to meet demand," he said. "Thus, it is deficient in refining capacity to meet the demand in this market."
With construction set to begin in 2011, the Hyperion Energy Center will be located on a 2,000-acre site outside the town of Elk Point in Union County. It will be accessible to the Keystone pipeline, which will transport heavy crude from Hardisty, Alberta, to the U.S. Midwest and Gulf Coast regions. However, with capacity on Keystone already substantially subscribed, Hyperion may resort to building its own "bullet line" from the refinery directly to Hardisty to ensure a dedicated supply of heavy crude.
The estimated $10-billion refinery will be permitted to produce gasoline, jet fuel, and ultra low sulfur diesel and to generate electricity using an integrated gasification combined cycle (IGCC) power plant. During the 48-month construction phase, the project is expected to produce an average of 4,500 jobs. Once it begins operations, the facility is expected to support 1,826 direct jobs and 14,176 direct, indirect, and secondary jobs throughout the economy. Local and state government coffers stand to gain an estimated $50 million per year in sales and property tax revenues, and the refinery's direct payroll will approach $100 million.
Built for a Greener Era
Hyperion maintains that its project is noteworthy not only because it will be the first completely new domestic refinery in more than a generation, but also that it will be the most environmentally friendly refinery ever built in the U.S. The refinery will use Best Available Control Technology (BACT) such as ultra-low nitrogen oxide (NOx) burners in all process heaters to minimize NOx formation and internal floating roofs on tanks. Also, it will have no fluidized catalytic cracking unit--often the highest-emitting unit in a refinery.
Rather than ship off petcoke from the refinery, Hyperion will use the solid residual byproduct at the adjacent IGCC to produce hydrogen, steam, and power for the refinery. The IGCC will be designed to capture more than 90% of the carbon dioxide that it produces and use up to 30% less water than traditional IGCC plants. Furthermore, it will require neither electricity from the power grid nor an energy-intensive steam-methane reformer unit.
Rather than ship off petcoke from the refinery, Hyperion will use the solid residual byproduct at the adjacent IGCC to produce hydrogen, steam, and power for the refinery.
For Phillips, integrating BACT throughout the complex is more than practicing good environmental stewardship. He sees it as a means of gaining a competitive advantage given the U.S. Government's overtures toward regulating carbon emissions and subjecting industry to additional pollution control mandates. Such actions, he points out, are driving the need for a "new generation of highly efficient refining capacity." He contends that facilities using best-in-class processing and environmental technologies have the most to gain in this new era. "We believe what we're proposing is the best combination of all those things," he said. "We're taking a long-term view and we believe that we're providing the best product."
'Open and Candid'
As prospective developers of major industrial projects in the U.S. have often learned, negative public sentiment toward such endeavors can cloud the merits of a project and even prevent the proposal from becoming a reality. In order to overcome this possibility, Hyperion has applied a strategy of engaging government officials, local businesses and residents, nongovernmental associations, and others to inform them about the proposed refinery's economic benefits and environmental safeguards. "We've been open and candid with all of our stakeholders from the beginning," said Phillips. "We've done a lot of things that are not required."
One component of Hyperion's pubic relations approach has been to host open houses in which technical experts provided information about the project and addressed stakeholders' concerns directly. In addition, the company backed the idea of letting county voters decide on a crucial zoning change for the refinery; the June 2008 referendum passed with nearly 60% voter approval. On the state level, Hyperion took the extra step of requesting a contested case hearing during the public phase of the air permitting process--and beyond the initial public comment period. Such a hearing is required only if one stakeholder requests it, and having the project developer make the request is highly unusual.
"We requested the contested case hearing to allow interested parties to further play a role in the vetting of the PSD permit that DENR (South Dakota Department of Environment and Natural Resources) proposed to issue for the refinery," recalled Phillips, referring to the Prevention of Significant Deterioration air permit. "Having the hearing resulted in more than 10 days of testimony from proponents, opponents, and the state. We made sure there was a robust discussion. We wanted to be in a community that wants us here."
"We made sure there was a robust discussion. We wanted to be in a community that wants us here."
For Phillips, Hyperion's emphasis on transparency throughout the process provides an important lesson for building a new refinery in a new era. "When you put the facts on the table, we've found that there's been overwhelming support at both the county and state levels," he concluded. "Our success has been a result of being open and transparent with stakeholders."