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The news that the Elk Point “Gorilla” project may turn into the 400,000 barrel per day refinery known as the Hyperion Energy Center was met with much excitement by state and local leaders as well as some members of the community. Many people are thrilled with the prospect of several thousand construction jobs coming to Union County to build the $8 to $10 billion project. However, some hurdles stand in the way of Hyperion and their ambitious plans.
According to energy analysts and insiders, the permitting process will be an uphill battle. The last refinery built in the US was Marathon’s Garyville, LA refinery which started production in 1976. Since that time the environmental climate has changed and government red tape has increased to the point that the permit process can take nearly a decade. Arizona Clean Fuels has a new refinery in the works outside Yuma, AZ and the permitting has been a very long process. According to Arizona Clean Fuels spokesman Ian Calkins, the first permit was applied for in 1999. If all goes well, they will have their final permit approved in 2008 and they may be able to start construction after that time.
Hyperion will face similar challenges in the permit process, wherever they
decide to locate their Energy Center. According to Malcolm Turner of
Turner, Mason & Company, a Dallas based energy consultant, the permitting
process, regulatory requirements and local opposition have for many years
served to assist in preventing effectively all new refinery construction in the U.S. These same barriers will continue to be significant deterrents to
the construction of a new refinery today, even though the primary economic
hurdles are manageable, with the increase in refining margins established
during the last three years.
Turner points to the creation of the Save Union County Committee and the
presentation by the National Refinery Reform Campaign as an indication of
the local opposition to the proposed South Dakota refinery. When asked why
Elk Point would be a good location for a refinery, he speculated that
Hyperion may believe the permitting will be easier to obtain in South Dakota
than other locations. Turner points out that in states like California, it
would be next to impossible to obtain the permits for a new
refinery.
As difficult as the permitting process will be, another issue will be to acquire and maintain the financing needed to bring a multi-billion dollar refinery to completion. According to Calkins, financing is one of the greatest challenges for Arizona Clean Fuels. It takes a very forward thinking investor to make a substantial capital outlay that may not produce any returns for 10 or more years.
Surely, other investors must be thinking the same thing. Phil Flynn of Alaron Trading Corp., a Chicago based investment firm pointed out the same things in a recent interview. According to Flynn, getting investors excited about a project that will likely take a decade to see the first return will be difficult. Flynn also pointed to the Arizona Clean Fuels project and the difficulty they have had maintaining investor support as a reason to be cautious about the future of the Hyperion Energy Center.
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