Finding a solution to North Dakota’s ballooning gas-flaring problem will require a “very difficult balancing act” that could take until the end of the decade to work out.
“We have to balance the ability to build gathering systems against the waste that takes place with flaring,” Lynn Helms, director of the state’s Department of Mineral Resources, said in a Nov. 20 Webcast.
“So we’re looking at toward the end of this decade before we really get this flaring dynamic under control.”
Gas production continues to increase at a faster rate than the more desirable crude oil, setting yet another production record in September at 793,546 thousand cubic feet, mcf, per day. Average oil output for the month was 728,494 barrels per day, also a record.
Bakken’s mounting gas volumesBy the time oil production reaches 1 million barrels per day, projected to occur in 2013 or 2014, the associated gas will amount to around 2 billion cubic feet per day, a huge volume that has state regulators concerned.
“If we are flaring 5-to 10 percent of that, that’s going to be equal to all the gas we produced in the first five years of the 21st Century,” Helms noted.
Additions to pipeline gathering and processing capacity are said to be helping, but the percentage of gas flared rose to 30 percent in October. In comparison, oil companies flared 23.5 percent of their natural gas in December 2010, up from 13.7 percent the year before. The historical high was 36 percent in September 2011.
“Even though we’re seeing a lot of build out of infrastructure … we are still very much in a struggle to reduce flaring in the state,” Helms said. “This is going to be a hard problem to solve.”
Flaring exemptions on riseHowever, because of the relative slowness in expanding the gas-gathering and processing system, he added, the state is getting a “tremendous” number of operator requests for variances and exemptions from regulations governing flaring.
Drillers can now flare natural gas for one year without paying taxes or royalties. After one year, companies must either connect to a gathering line, an electrical generator, or apply for an exemption. The exemption would allow an operator to not pay taxes and royalties should connection or an electrical generator be deemed economically infeasible.
Helms said that strict adherence to North Dakota’s production restrictions in the current infrastructure environment could potentially reduce the profit on Bakken-Three Forks wells by 25 percent.
“For investors that’s probably too severe and would very (likely) reduce the economics and impact the number of people that we have working, the rig count, and all those sorts of things,” he said. “At the same time, we have to look at the waste issue,” Helms said.
Oil outweighs gasHowever, the economic reality is that gas makes up just 6 percent of the energy and a paltry 3 percent of the income derived from Bakken-Three Forks production, while the more desirable oil makes up well over 90 percent of the pie.
“We’re seeking that balance — the difficulty in building up the gathering systems and getting easements against the economic waste, against the resource waste and energy waste, against having a severe economic impact,” Helms explained.
He said for now, the state has opted to allow more flaring because strict application of the regulation “would negatively impact the profit of the Bakken well by as much as 25 percent … in an environment where they (operators) can’t get a gathering system.”
The oil and gas industry is reportedly investing more than $3 billion in infrastructure to capture the natural gas.
Most land in private ownershipHelms said the biggest problem in expanding the gathering system is acquiring rights of way or easements across private property to lay pipelines. In North Dakota, 82 percent of the land is privately owned, he said.
“It’s a long process of a half-dozen right-of-way negotiators coming to a house and asking for more and more and more of their land,” he said.
That’s because today’s agreements generally call for one pipeline per “exclusive” easement, “so they begin to take up a lot of their land,” Helms noted, adding that lawmakers are looking at possibly replacing the current practice with multiple use corridors, where several pipelines and a power line would occupy the same easement.
Flared gas alternativesThe state has looked at a number of possible uses for the gas that is currently being flared, including the conversion to anhydrous ammonia fertilizer. (See related story, page 13)
Previously investments were made for research into electrical generation, and compression of natural gas for use as fuel or transport to a processing facility.
Future projects may include use of flared gas to produce petrochemicals, conversion of flared gas to liquid fuels, and removal of natural gas liquids from flared gas.
“It is hoped the legislature will consider tax exemptions and royalty certainty to provide incentives for beneficial uses like the above,” Helms said in his monthly Director’s Cut report.