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Economics, Propane Lobby Stymie NatGas Expansion in North Dakota

In a state in which the Bakken oil boom produces more than 1.5 Bcf/d of associated natural gas, most smaller towns still depend on propane for their thermal energy needs, and that is likely to continue as economics and the propane suppliers' lobby tend to keep local communities from making the transformation.

Most efforts in this year's state legislature to address the situation were soundly defeated, except for a proposal (HB 1398) that was passed and is awaiting Gov. Doug Burgum's signature. The bill would allow communities under 2,500 population to get natural gas service -- delivered by truck, rail or pipeline -- and have local authorities establish and regulate rates for the service.

Otherwise, proposed incentives and/or subsidies to help communities get extensions of natural gas distribution pipelines "have been successfully fought by the propane industry," said Julie Fedorchak, one of three members of state Public Service Commission (PSC).

HB 1398 will probably be signed by the governor, Fedorchak told NGI.

Modeled after an existing policy in Minnesota, HB 1398 would allow communities to negotiate directly with utility service providers to develop individual plans for serving a particular community.

"If they can come to terms on what the service looks like and its cost, then they can seek a waiver from the PSC to avoid state rate/regulatory oversight," Fedorchak said. "This isn't  a silver bullet for everyone, but it definitely provides an avenue for communities to get creative and find an alternative way to get natural gas to their local area."

HB 1398 is viewed as a bridge or transition to a later time when towns might be able to find a more permanent solution through connection to the state's existing natural gas network, which is provided principally through the MDU Resources Group's PSC-regulated utility.

North Dakota Pipeline Authority head Justin Kringstad said he is aware that North Dakota's gas transmission pipelines and utility local distribution companies are "continuing to evaluate the prospects of delivering additional natural gas to unconnected communities in the state.

"The challenge continues to be a given community’s distance from the existing pipeline systems and the volume of demand in the community. In many cases, it may require a large commercial user around an unconnected community to justify the large upfront investment in new pipeline infrastructure."

While the U.S. shale gas boom has spurred many states to seek ways to expand natural gas service, there are more than 12 million homes that use propane for heating nationwide, according to statistics from the U.S. Energy Information Administration (EIA). In North Dakota, more than 360 small communities have no natural gas service while 70, including all of the largest population areas, have traditional gas utility service.

North Dakota Propane Gas Association officials said they cannot stop a utility from moving into communities, but they are opposed to efforts that create an "unfair playing field," although individual manufacturing businesses and the state Association of Rural Electric Cooperatives favor extensions of natural gas service.

Claiming significant interest in an open season last year, a unit of Bismarck-based MDU Resources continues to push forward with plans to build a $60 million interstate natural gas transmission pipeline to bring supplies to areas of eastern North Dakota and western Minnesota. An open season for the project was completed last summer. MDU's WBI Energy Inc. has lined up binding commitments for its 38-mile, 16-inch diameter Valley Expansion Project.

Eventually, interconnections north and south of the transmission pipeline could serve small towns in the far eastern part of the state with natural gas, Fedorchak said.

"[HB 1398] is really a component of economic and rural development with no real added cost to the state," said Fedorchak, adding that the PSC has a proposal from MDU to establish service with Bobcat Co., maker and marketer of compact construction, farming and landscaping equipment, and two other potential large customers in Gwinner, ND.

"The Bobcat installation is one the state, overall, has been very interested in finding a solution for getting it natural gas service," Fedorchak said. Not having access to natural gas is viewed as a "global competitive disadvantage for Bobcat," she said.

Fedorchak said the PSC will be reviewing MDU's proposal in the next two weeks. The project would get its gas supplies from an interconnection with the existing interstate Alliance Pipeline.

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