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Published October 13 2012

Forum editorial: Refinery won’t cut fuel prices

It appears a North Dakota American Indian tribe is a step closer to building a crude oil refinery on tribal land. That’s good news for the people of the Fort Berthold Reservation, but let’s not get seduced by the fiction that an in-state refinery will mean lower gasoline or diesel prices at North Dakota service station pumps, as some refinery promoters have been saying.

First, the proposed refinery will likely have the capacity to refine, at most, 20,000 barrels of crude a day. That’s a drop in the crude oil market bucket.

Second, the prices of refined products like gasoline and diesel (the Fort Berthold plant would produce propane and diesel, with the diesel going into the North Dakota market) are set primarily by national and global commodity markets. It is unlikely the owners and operators of any new refinery would threaten their profitability by discounting their products, especially when they would be buying crude oil at prices set by the market.

There is very little convincing evidence that the mere presence of a refinery or two in a state means lower prices at the pump. North Dakota has had a refinery (mostly diesel) at Mandan for years, but the price of fuels at pumps in Mandan and Bismarck is consistently higher than in Fargo, where there is no refinery. Even with the Mandan refinery doing its thing, diesel fuel shortages have been common.

Minnesota’s refineries have not lowered the price of gasoline in that state. In the most recent example, California gasoline prices flirted with $5 a gallon when just one of that state’s many refineries had production problems. Tank car trains of North Dakota’s sweet crude go to refineries in East Coast states every day, and gasoline prices in those places are some of the highest in the nation.

Even in that realistic context, new refineries in North Dakota still make sense. They can provide construction jobs and good permanent jobs when up and running. They will have a reliable nearby source of crude for many years, as the Bakken play continues to expand and pump into the foreseeable future. They will make North Dakota oil more valuable because transportation costs from well to refinery will be less.

But a break at the pumps for gasoline and diesel? Marginally, maybe, but not significantly. Energy markets are complex and volatile. The prices of oil and refined products are set by the manipulations of jittery speculators, squishy economic forecasts, distant wars and rumors of wars – not by supply and demand. And certainly not by a small refinery on a North Dakota American Indian reservation.

Forum editorials represent the opinion of Forum management and the newspaper’s Editorial Board.