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Newest Refinery in U.S. Could Fall to Low Oil Prices

A brand new North Dakota refinery—the only new refinery built in the United States since the 1970s--has been forced to cut production, while its owners and operators are forced to concede that a sell-off might be in order thanks to the consistently low oil prices.

The North Dakota based refinery, owned by MDU Resources Group Inc and Calumet Specialty Product Partners LP, is only running at 75 percent of capacity due to low demand for diesel fuel, which is its main product. Refinery losses over the first quarter amount to $7.2 million.

"In light of current market conditions, we are assessing various options with respect to our ownership interest in the refinery," Dave Goodin, MDU's chief executive, told investors on Wednesday.

Related: Is This The Biggest Red Herring In Oil Markets?

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The refinery, which only started selling fuel a year ago, got off to a rocky start with an initial investment of US$430 million—a sum that was 40 percent above original estimates.

The new refinery is one of only two refineries in North Dakota. The timing, however, was not ideal. Crude oil started to slide before the refinery even got off the ground.

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In its turn, partner Calumet said the company has started a "comprehensive review of our existing assets," including the North Dakota refinery. "We believe every asset in our portfolio must be financially self-reliant to remain part of this long-term portfolio," Calumet CEO Tim Go said in a statement.

Related: Why Oil Prices Will Likely Drop Below $40 Soon

In its quarterly earnings report, Calumet says it may divest some of its assets, including the refinery.

Under these difficult circumstances, MDU was compelled to use oil from its own wells in order to keep operating the refinery.

The North Dakota’s refinery plight may dishearten other similar initiatives in the state, including the three affiliated American Indian tribes of the MHA Nation who had eyed building such facilities in the state previously.

By Charles Kennedy of Oilprice.com

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