Shale Daily / NGI All News Access

Companies Spending $3B to Capture Flared Natural Gas in North Dakota

Oil and gas companies operating in North Dakota's portion of the Bakken Shale are spending about $3 billion on infrastructure projects to capture natural gas currently being lost to flaring at oil drilling sites.

Justin Kringstad, director of the North Dakota Pipeline Authority (NDPA), told NGI's Shale Daily the Bakken poses some unique challenges.

"The sheer size of the play itself, about 18,000 square miles, is something that the petroleum industry has never had to deal with before," Kringstad said Monday. He estimated that oil and gas companies were spending about $3 billion on current projects to capture the gas. "The infrastructure for capturing the gas wasn't built before because it just wasn't economical to do so."

According to North Dakota state law -- also known as the Century Code -- gas produced with crude oil from an oil well may be flared for a one-year period from the date of first production from the well. After one year, the flaring must cease and the well must be either capped, connected to a gas gathering line or equipped with an electrical generator that consumes at least 75% of the gas from the well. Operators who violate this proviso must pay royalty owners and gross production taxes based on the value of the flared gas.

The NDPA said that although gas gathering in the Bakken has increased substantially over the last five years, the percentage of oil wells without gas sales has also increased. It found that in July 2011, about 28% of the approximately 3,500 oil wells in production -- nearly 1,000 oil wells total -- did not have gas sales and were flaring. By comparison, about 20% of the approximately 2,000 oil wells in production in July 2006 -- about 400 oil wells total -- did not have gas sales and were flaring.

Another problem, Kringstad said, is the weather in North Dakota over the winter and spring. "It's very cold in the winter and wet in the spring," Kringstad said. "Both of those combine to make construction of pipelines and other infrastructure very difficult." But despite the drawbacks, Kringstad said several companies were making investments in the Bakken. Among them are:

According to data from the NDPA, in July 2011 the state's oil and gas infrastructure was capturing 92.4% Btu, with the remaining 7.6% being flared. Citing an oil price of $91.79/bbl and a natural gas/NGL price of $12/Mcf at the wellhead, captured gas represented 95.7% of economic value while flared gas was at 4.3%.

The NDPA also said gas production totaled less than 200 MMcf/d in 2006 -- the earliest year figures were available -- with plant capacity slightly north of that mark. But the authority said plant capacity has grown tremendously since then, projected it to total about 1.1 Bcf/d in 2012. Gas production approached 400 MMcf/d in 2010 and was projected to more than double by 2012.

According to NGI's Shale Daily Unconventional Rig Count for the week ending Oct. 7, the Bakken/Sanish/Three Forks play has enjoyed a 33% increase in activity from one year ago as the number of rigs operating has grown from 146 to 194.

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