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How can North Dakota curb natural gas flaring? Lawmakers mull tax incentive

As oil prices inch upward and North Dakota producers look to bring more wells back online, lawmakers are considering offering a tax credit to oil industry producers to help the state to keep environmentally harmful natural gas flaring under control.

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Natural gas is flared at a well site north of Killdeer along North Dakota Highway 22. Tom Stromme / Bismarck Tribune
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BISMARCK — North Dakota oil producers have historically struggled to keep pace with the state's tightening regulations on the environmentally harmful flaring of natural gas.

Over the last seven years, the state has steadily raised its gas capture goals in an attempt to catch up with the flaring rates of other oil producing states around the country. And though the latest figures from state regulators show the industry has recently hit milestone gas capture levels — clearing the state's recently adopted 91% capture bar by three percentage points in the most recent report — increased production in the recovering oil economy threatens to reignite the industry's flaring challenge.

As oil prices inch upward and North Dakota producers look to bring more wells back online, Sen. Dale Patten, R-Watford City, said that offering a tax credit to oil industry producers may help the state to keep flaring under control.

Senate Bill 2328 , which cleared the Senate in a 44-3 vote last month, would cut the state's extraction tax on the oil industry for wells that install natural gas flaring mitigation systems. The bill is now under consideration in the House.

"When it comes to natural gas, the most efficient business model would be to flare it," Patten told lawmakers on the House Finance and Tax Committee Tuesday, March 9. "This for so many reasons, such as environmental concerns and it being a waste of a non-renewable resource, makes this an untenable option."

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The tax credit applied by Patten's bill would phase out after three years and cap at $6,000 a month per well, with individual wells eligible to benefit for up to 12 months.

And though the state tax department estimated a $3.6 million cut to state tax revenues for every 50 oil wells that capitalize on the credit, Patten said the only wells eligible for the incentive would be wells where the state is not currently collecting any tax revenue off of flared gas.

Since the bill aims to keep more wells within regulation, Patten argued that tax revenues would ultimately come out higher because of increased production stemming from the incentive.

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Natural gas is burned off in the Oil Patch in western North Dakota. Forum News Service file photo

Tamping down on flaring has become an increasingly important aim for North Dakota's oil industry, in part because of tightening regulatory standards, but also due to private-sector pressure as Wall Street backers have shifted investments toward environmentally-conscious and sustainable energy companies.

"We think this is a big initiative in a time in which emissions and control of emissions are going to be more and more critical not only if we want to garner more investment, but also if we don’t want to be the target of further additional regulatory challenges," North Dakota Petroleum Council President Ron Ness told lawmakers in Tuesday's committee hearing on the flaring mitigation bill.

Historically, producers on the Three Affiliated Tribes' Fort Berthold Indian Reservation have flared at higher levels than the rest of the North Dakota oil industry. Patten's bill would not necessarily apply to the reservation because of the tribe's established tax agreement with the state, but it could choose to opt in.

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Gas capture companies backing the bill laid out different tactics to lawmakers for cutting the state's methane emissions on Tuesday, showcasing flare mitigation products that would qualify oil wells for the credit.

One company, Denver-based Crusoe Energy, is pursuing a particularly novel use for otherwise wasted Bakken natural gas. The small startup marries two distant industries by generating electricity off of the excess gas to run storage container-housed server farms on the well site. These systems, which operate at a low cost in North Dakota's cold climate, can be used for affordable cloud computing and have seen climbing demand in recent years from tech sectors like bitcoin mining.

And Billings-based GTUIT, which also endorsed the bill, can use on-site generators to strip liquids off of natural gas and export them to market. The dry gas remains and can be put to other uses.

The advent of President Joe Biden's climate-focused administration has put an added pressure on North Dakota oil producers to reduce flaring. President Donald Trump weakened methane emission rules at the end of his administration, but the reinstallment of stringent federal flaring policies could threaten Bakken production.

Preempting such federal action, Patten said, would insulate the state from a potential regulatory hit to the industry.

"It's an unknown what the Biden administration would do, but this is an attempt to get ahead of it," he said. "Regardless of if it was Biden or anything else, it's a valid attempt to do something good."

Readers can reach Forum reporter Adam Willis, a Report for America corps member, at awillis@forumcomm.com .

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Natural gas is flared in April 2018 at an oil well site north of Ross, N.D. Tom Stromme / Bismarck Tribune

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Natural gas is flared in April 2018 at an oil well site north of Ross, N.D. Tom Stromme / Bismarck Tribune

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