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Report Raises North Dakota's $100M/Month Question -- Flaring

Without dramatic intervention North Dakota's natural gas flaring -- already costing about $100 million/month -- is going to get worse even if the percentage of total production flared goes down, as state and industry officials predict, according to a report released Monday by Boston-based social responsibility nonprofit organization Ceres.

The assessment by analysts outside of the industry acknowledges that state officials, the oil/gas industry and individual producers have invested several billion dollars in additional gas processing and takeaway infrastructure, but Ceres' analysis concluded that total volumes flared are steadily rising.

"Volumes of flared gas have more than doubled between May 2011 and May 2013 [a little more than 100 MMcf/d to more than 250 MMcf/d]," the report said. "In 2012 alone, flaring resulted in the loss of approximately $1 billion in fuel and the greenhouse gas emissions equivalent of adding one million cars on the road."

The full collection and marketing of North Dakota's natural gas faces two critical challenges according to Ceres' report, "Flaring Up: North Dakota Natural Gas Flaring More Than Doubles in Two Years." One challenge is the current low value of natural gas relative to crude oil; another is that gas needs its own infrastructure to be collected and marketed.

Amid the backdrop of last year's World Energy Outlook by the International Energy Agency where it was predicted that the United States would return to being the world's largest oil producer again in 2020, North Dakota, now the second largest U.S. oil producing state, is leading the charge and setting regular monthly production records for both oil and natural gas, meaning more gas (by volume, at least) to be flared.

Development of the Bakken Shale formation increased 40-fold in the six years between 2007 and 2013, and North Dakota officials and industry players have struggled to get a grip on flaring (see Shale Daily, Dec. 26, 2012).

"The [Ceres] report is similar to the issues we look at and try to address every month," said a spokesperson for the North Dakota Department of Mineral Resources, which oversees oil/gas production. "Oil cannot be produced without the associated gas, so as oil production has risen, so to has natural gas production. The department will continue to encourage operators and midstream companies to invest in and construct the necessary pipeline and processing infrastructure."

Ceres, a nonprofit focused on mobilizing business leadership on sustainability challenges, such as climate change and water scarcity, recommends that North Dakota strengthen its rules for fracking and the industry have a freer exchange of best practices on the subject.

Calling North Dakota's flaring regulations "unusually permissive," Ceres report authors Ryan Salmon and Andrew Logan said that is part of the reason why the state's flaring is much higher than other resource-rich states, such as Alaska, California and Texas.

"New tax incentives are a start, but a stronger regulatory regime would provide the economic signal needed to drastically reduce flaring in North Dakota," the co-authors said.

The report said several Bakken producers have set aggressive goals to reduce flaring, and given the economic viability of solutions, including greater investment in gas processing, gathering and pipeline infrastructure, those producers are likely to benefit from any solutions.

Ceres' authors looked at the cost of flaring (up to $13.50/Mcf when gas and natural gas liquids values are added together); industry efforts to curb flaring (it cites Hess Corp.'s commitment to invest $1.2 billion in additional oil/gas infrastructure in North Dakota between 2011 and the end of this year); and projections for the future that total volumes of flared gas will continue to rise.

Ceres recites past public promises from Whiting Petroleum Corp. to have zero flaring emissions; Hess to begin reducing its flaring totals below the state's 10% goal; and Continental Resources' ultimate goal to be "as close to zero percent as possible" (see Shale Daily, Jan. 14).

Nevertheless, Ceres said that even if North Dakota meets the 10% goal for flaring, "total volumes of flared gas in 2020 would still exceed the amount flared in 2010."

Citing an earlier Bentek Energy study done for the North Dakota Pipeline Authority, the Ceres authors said that as wells mature, the rate of production of gas tends to grow faster than oil production, further exacerbating the flaring problem. This has been experienced in recent months as the flaring percentage has hovered between 28% and 30%.

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