What are the forces moving the Minnesota economy? Adam Belz tries to identify the trends and show the connections between Minnesota and the larger U.S. and global economies. You can connect with him on Twitter: @adambelz

Map: In Midwest, population of children rising west of Mississippi, falling to the east

Posted by: Adam Belz under Business trends, Economics Updated: October 27, 2014 - 6:02 PM

No big story here, just a demographic nugget. Minnesota's population of children under 18 rose 1.4 percent between 2007 and 2013. That's faster than the national average, which was 0.1 percent, slower than all of its neighbors except Wisconsin, and faster than the biggest Midwestern states -- Ohio, Michigan, Indiana and Illinois.

Generally speaking, Midwest states east of the Mississippi have fewer children than six years ago, while Midwest states west of the Mississippi have more.

You can scroll over the map for detail, including the percent change and the absolute change in the number of children in each state from 2007 to 2013. (The data comes from the American Community Survey's 3-year estimates in 2007 and 2013, numbers rounded to the nearest 1,000.)

Together, Ohio, Michigan and Illinois have 447,000 fewer children than six years ago. Michigan alone lost 210,000, an 8.5 percent decline. Minnesota added 18,000 children in the same period. Wisconsin lost 6,000, a 0.5 percent drop.

North Dakota added 13,000, enough for a 9.1 percent increase.

I ran the numbers after seeing this piece, which approaches the question a little differently but is essentially driving at the same thing.  

Opening Belz, Oct. 27

Posted by: Adam Belz under Business trends Updated: October 27, 2014 - 8:42 AM

MCTC culinary program in danger, chef wages too low, 42% default rate – StarTribune
Sundar Pichai is now in charge of most of Google’s products – ReCode
Market gains in Brazil over candidate’s presidential run are “fool’s gold” – Bloomberg
Williston’s econ dev director Tom Rolfstad to retire – Bismarck Tribune
Asylum project in Fergus Falls hangs in balance – StarTribune
Ebola survivors in Liberia band together to help orphans – LA Times
Duluth’s East 4th St. residents protest proposed tree removal – News Tribune
First rail congestion, now barges are getting hung up – StarTribune
North Dakota ag commish race is clash over energy policy – Grand Forks Herald
A deep dive into sweat sensor research at Univ. of Cincinnati – Spectrum
Federal rules deterring banks from approving home loans – LA Times

The man who wants to build a plastics factory in North Dakota (Part 2)

Posted by: Adam Belz under Business trends, Economics Updated: October 27, 2014 - 9:52 AM

(Part 1 of the interview, which helps set up part 2, is available here.)

I talked to Badlands NGL CEO Bill Gilliam, who wants to build a $4 billion petrochemical plant in North Dakota, 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. So southeast North Dakota doesn’t really fit as a site for the petrochemical plant?

Gilliam: “We don’t think so at this point. There’s certain things where people are saying that with either consumer gas or industrial gas there might be reasons. We feel that southwest, south central or northeast make the most sense.”

Q. What else should I be asking you?

Gilliam: “I’ll go back and comment on it even though I could duck it at this point since you forgot to follow up. I talked about debt. On the equity side, we have talked with lots and lots and lots of institutional sources of equity, and I think we can say that we’re extremely confident that doing this business, with the kinds of margins one can get converting ethane into polyethylene in North Dakota, we have multiple ways of getting all the investment funds we need. It is not something that’s seriously making us spend a lot of time or wring our hands or anything. The enthusiasm for the numbers and for the strategic idea and everything else like that are compelling, and therefore we feel that the capital markets are enthusiastic. They’re staying enthusiastic. We have multiple folks that we’re talking to. There are a number of different ways to add up to the kind of equity number that we need. We’ve had very candid discussions with the retail folks that were our most recent investors, a lot of whom are in North Dakota, many of whom are helping us every day with logistical things in North Dakota. I think they feel that getting the rest of the money is not going to be an issue and is not going to be something that causes them to have dilution that is outside of any expectation. I think this is a very well understood thing, and I just don’t think it’s going to be much of an issue.”

Q. Thanks for helping me out by returning to that subject. How much of the $4.2 billion do you envision being debt, and how much do you envision being equity?

Gilliam: “Very preliminarily, $3 billion of debt and $1.2 billion of equity.”

Q. Judging by your accent, it doesn’t sound like you’re from Williston. Where are you from?

Gilliam: “I am from everywhere. I was born in New York. I lived there a lot as a young, young kid. I lived in different places in Europe in grade school and high school. I went to college in New York as an undergraduate. I’ve lived on the east coast, I’ve lived on the west coast, I’ve lived in between. I lived in Colorado. Lots of different places, and I’ve done business all over the world.”

Q. Where did the idea for this project come from?

Gilliam: “It is a pretty straightforward thing to say, make polyethylene polypropylene from natural gas liquids. A little over four years ago, I was very seriously looking at buying an existing facility that a major manufacturer had mothballed. When that did not come to fruition, and I was in the process of looking at things, when all of a sudden, the shale gas revolution made ethane this huge oversupplied commodity, I started saying, where else could that formula apply? I was always very used to this balance between ethane from oil and ethane from gas kind of sort of being in parity. Propane for polypropylene, whether it’s from oil or from gas, is in parity. But ethane is not. If ethane were to come from oil, it ought to cost 80 cents a gallon instead of 20 cents a gallon. The reason it costs 20 cents a gallon is a) there’s not only so much of it in the gas streams, but also b) that most of the gas processing plants can’t even separate the ethane from the methane. Not only was North Dakota going through this unbelievable growth in oil and gas production, but the natural gas liquid content of the gas in North Dakota is unlike any other gas in the United States. (The ethane content of natural gas in North Dakota is twice the ethane content of gas in other shale fields, Gilliam says.) You’ve got an unbelievable amount of ethane. It’s not like, well, it’s a cheap available commodity in North Dakota. We think Northern Border is full right now (in terms of ethane content, which can be dangerous if allowed to rise too high in pipelines). There’s really no more room (for ethane). In terms of ethane supply and demand in North Dakota, this plant is a vital and integral part of not only the state’s effort to reduce flaring, but an effort to make sure that oil and gas producers and midstreams can solve the issue of the vast amount of ethane that’s being produced.”

Q. Do you have to build a pipeline of your own for ethane?

Gilliam: “What we’ve told the engineers for the $4-$4.2 billion facility, is assume the gas is at your doorstep and it’s 99 percent pure. Obviously we’ve got to do some things to get it there, which is going to cost money, and there are a variety of ways of doing it, but I can just tell you we have very big, very capable companies saying, ‘We’ll do all of that for you.’ We may have some variations on that, but quite frankly we feel that the logistics have to do with the physics of where is it and how do you do it, and then there’s also the economics. We have some very interesting things we’re doing with economics, which we have not disclosed, which we might be disclosing before year’s end, but there are significant incentives that will be available to folks that jump on the bandwagon very quickly. Even today, is for well less than half of the ethane (in North Dakota). You don’t want to be on the side of maybe there’s no real outlet or the ethane, and you weren’t one of the first guys to jump on.”

Q. Do you see this as the first step in maybe the petrochemical industry coming into North Dakota in a lot of other ways, or are there barriers there that somebody like me wouldn’t understand? I wonder if glue or paint will be made in North Dakota some day.

Gilliam: “For polymers, this is the first step. I think this plant could expand. I think this plant could make polypropylene and not just polyethylene, but let me give you a more nuanced answer than that. We look at the difference in the United States between West Texas intermediate crude and brent crude. Brent crude is a world market. What happens now is totally different from five years ago, with India and China taking more crude from the Russias and from the Venezuelas and from the Middle East than we used to take. There’s an artificial price that OPEC tries to maintain, but you have that price. Now you have West Texas intermediate. Here’s some interesting things. If somebody had told me in the 1980s that by 2014 we would be producing more crude oil in this country than Saudi Arabia, I would have looked at them and said, are you from the planet Mars? But we are. Here’s the interesting thing. Has anybody built a new world-scale refinery in the United States in the last 50 years? No. Can you export crude from the United States? No, it’s illegal. Now those are two pretty big macroeconomic issues. There’s a big, big refinery in North Dakota in Mandan operated by Tesoro. It is not a modern world-scale refinery because it doesn’t do what’s called catalytic cracking. Exxon Baytown is a half-a-million cat-cracking refinery. That’s a modern refinery (second largest in the U.S.). If there is in fact going to be a lot more domestic oil production, than I would say in the United States we’re going to see several brand new, very modern, world-scale refineries to take advantage of domestic crude (which would also allow for other types of petrochemical processing), and we’re going to have to change our laws so people can in fact export crude. It makes no sense to not export crude if we’ve got more crude than we can possibly process. That’s the problem right now.”

Q. So either we have to change the law or build more refineries, or are you saying we have to do both?

Gilliam: “I think we’ve got to do both. If anybody said to me, in the next ten years, where do I think two refineries could go? I think one should be in West Texas and one should be in North Dakota.”

The man who wants to build a plastics factory in North Dakota (Part 1)

Posted by: Adam Belz under Business trends, Economics Updated: October 27, 2014 - 9:52 AM

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.”

Opening Belz, Oct. 24

Posted by: Adam Belz under Business trends Updated: October 24, 2014 - 9:03 AM

Farmers, others blast railroads over new reports on backlog – StarTribune
Iowa-based MetaBank pulls hundreds of ATMs from Colorado pot shops – Denver Post
In Possum Grape, Ark., a spirited fight over alcohol sales – LA Times
Developer aims to build 148 apartments overlooking Lake Superior – Duluth News Tribune
Amazon’s spending leads to biggest quarterly loss in 14 years – WSJ
A nice deep dive into Amazon’s business from Benedict Evans – Quartz
How Code42’s Matthew Dornquast works – Lifehacker
U of M researchers unveil new variation on the Honeycrisp apple – StarTribune
Fire heavily damages Kansas City’s iconic Hotel Savoy – Kansas City Star
Confessions of a white Oxbridge male: “I feel very little sense of achievement” – Financial Times
Enbridge CEO Al Monaco says 15% of firm’s oil passes through Twin Ports – Duluth News Tribune
Smart political cartoon by Polish artist Pawel Kucszynski – Twitter

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