ND to roll out new plan to curb outsized rate of wells burning off natural gas
FARGO - North Dakota is the No. 2 oil-producing state in the U.S., but it’s the king of flaring natural gas.
Over 12 months ending in May 2012, according to a recent study by energy research organization Ceres, North Dakota wells burned off $1 billion in natural gas.
Flaring has grown leaps and bounds faster than the soaring amount of gas the state has produced amid its oil boom. The volume of gas flared in North Dakota skyrocketed 21-fold from January 2006 to April of this year, while gas production increased almost seven times.
The rate of flared gas was 5 percent at the start of 2006 but 29.6 percent in April, according to the North Dakota Department of Mineral Resources.
The fact that flaring increased at three times the rate of production since 2006 underscores the pressure on state regulators to curb the wasteful burning of natural gas, a source of wide concern.
On Tuesday, North Dakota’s top oil and gas regulator is expected to present detailed recommendations for reducing flaring, including possible production curtailments if goals aren’t met, a step industry has staunchly resisted and critics say is badly needed.
A high-flaring state
North Dakota’s contribution to the amount of natural gas flared in the United States is vastly greater than its share of production, according to the U.S. Energy Information Administration.
From 2008 to 2012, North Dakota accounted for 0.5 percent of the total natural gas produced nationally, but its producers contributed 22 percent of all the gas that was flared or vented, the Energy Information Administration reported in March.
Huge sums of money are burned off when gas is flared instead of being captured and sold.
In April alone, the most recent figures available, the value of gas flared was $43.6 million, applying the price paid for gas delivered to a pipeline in Watford City.
Flaring natural gas also contributes to greenhouse gas emissions. When burned, natural gas primarily releases carbon dioxide, a less potent greenhouse gas than methane, the main ingredient of natural gas.
Gas flared in North Dakota from May 2011 to May 2012 released carbon dioxide equivalent to adding 1 million cars to the road, the Ceres report estimated.
One hurdle to ending flaring is economic. Contrary to public perception, natural gas in the Bakken is valuable, rich with liquid byproducts that can be processed and sold along with the gas. But natural gas is regarded by industry as a byproduct of the oil, which has a value 22 times greater than the gas, according to officials.
Critics contend that imbalance makes it tempting to simply flare gas in pursuit of oil, but industry representatives maintain that the value of the gas is the greatest incentive for capturing it.
The state’s stubborn flaring problem persists despite the fact that almost two-thirds of the flaring wells now are connected to a gas-gathering system.
A big reason for the problem: The collection pipes in the ground often aren’t big enough to handle the volume of gas flowing from the wells.
That’s because production is outpacing expectations when the gathering pipe was laid, often several years before a well is drilled.
To solve that problem, officials are considering changing the policy for wells that are connected to lines to gather gas. There are no production restrictions for a well connected to a pipeline, even if it’s capturing only a fraction of the gas.
This month, regulators began to require gas-capturing plans for all new wells drilled, and plans for existing large wells will be due in September.
The gas capture plans, meant to ensure that collection keeps pace with drilling, are a key component of industry recommendations to curb flaring.
Top officials also have signaled they will be less lenient in granting exemptions allowing companies not to pay state taxes and mineral royalties for flared gas after the first year, when companies are allowed wide leeway in flaring.
Gov. Jack Dalrymple proclaimed that “those days are over,” when addressing a Bakken industry forum in May.
Dalrymple reiterated the point in a pipeline summit last week. “We will reduce flaring,” the governor told executives, regulators and investors. “It’s just that simple.”
Improving the problem
As a sign the state is turning the corner on flaring, state officials highlight the fact that the volume of flared gas declined 9.7 percent in April, largely because a new gas processing plant near Tioga came fully on line.
Since 2006, industry has installed 9,555 miles of gas-gathering pipe, and gas-processing capacity is expected to reach 1.6 billion cubic feet next year, up from 1 billion feet last year.
Companies have invested more than $9.5 billion over the past seven years on petroleum pipeline infrastructure and processing plants, officials have said.
“So there’s a tremendous amount of effort in getting pipe into the ground, but it’s going to take more work,” said Justin Kringstad, director of the North Dakota Pipeline Authority.
In fact, the state now has more gas-processing capacity than it can use, because of bottlenecks in the gas pipeline system, he said.
One key to crimping flaring is to target the 200-plus wells that account for 60 percent of gas burned off, Kringstad added.
To eliminate bottlenecks, and otherwise reduce flaring, regulators will recommend ways to encourage companies to act when they present proposed new measures Tuesday to the North Dakota Industrial Commission.
“This order will be to give more incentives to reduce flaring,” said Bruce Hicks, assistant director of the North Dakota Department of Mineral Resources. “There is a very strong push to get that infrastructure expanded.”
Hicks declined to provide details of the proposal, but industry representatives have pushed for tax incentives on pipelines, electric transmission lines and for plants that would turn gas and byproducts into products, including liquefied natural gas.
The regulations are aimed at reducing flared gas to 10 percent by 2020, with the potential of ultimately flaring 5 percent, targets first proposed by an industry task force.
Undoubtedly, flaring regulations will evolve over time, Hicks said. “It’s the first step in a number of orders to meet our goals.”
The plan for reducing flaring relies more on incentives than penalties, an approach that reflects the state’s regulatory philosophy, Hicks said.
“What we want to do is provide a good business environment,” he added. “We’re hoping they can meet the targets without restricting the wells.”
Tougher action urged
An environmental advocacy group contends that the state will fall far short of meeting the goals unless it adopts more stringent flaring regulations.
A report by the Environmental Defense Fund estimates that flaring in North Dakota will not drop below 81 percent.
Flaring reduction proposals pushed by the petroleum industry rely heavily on requiring companies to submit plans for capturing gas at the wellhead.
But Dan Grossman, EDF’s Rocky Mountain regional director, noted that most flaring wells today are connected to a gas-gathering system.
“These gas capture plans alone won’t assure any reductions in flaring,” he said. “The gas capture plans with no teeth would fall short.”
So far there is no mechanism to enforce the capture plans, Grossman said. His group has proposed a gas flaring standard, setting enforceable limits.
Companies would be given flexibility in meeting the targets but would face production curtailment sanctions for failing to meet the standard, under the EDF proposal.
The North Dakota Pipeline Authority predicts that gas production will almost double to about 2 billion cubic feet per day by 2020.
Flaring 5 percent of that would waste more than $151 million per year, based on recent gas prices, the EDF concluded.
Mineral owners have sought, so far unsuccessfully, to bring a class-action lawsuit to collect damages for unpaid royalties lost due to flaring.
The onus is on mineral owners to individually press claims for lost royalties due to flaring gas before the Industrial Commission.
Lawyers representing mineral owners in lawsuits could find no record of that happening. That’s largely because the cost can be greater for many than the damages collected, said Derrick Braaten, a lawyer for mineral owners.
That means mineral owners rely heavily upon regulators to enforce flaring and prevent waste. Instead of taking a predominantly “carrot” approach, Braaten said state regulators should take more of a “carrot and stick” approach, combining incentives and stiffer penalties.
“You can have a good business climate,” Braaten said, “and still regulate the industry.”