North Dakota's oil/natural gas boom continues to be a mixed blessing for state energy planners, and future pipeline infrastructure's adequacy is one of many questions state officials hope to have some answers for by mid-year. A study is under way by the state Pipeline Authority to determine if existing infrastructure will be adequate.
The most recent report from Lynn Helms, director of the state Industrial Commission's Department of Mineral Resources, noted a large new gas processing system came online Jan. 20, adding 14% to the state's processing capacity. And Helms indicated other new systems are planned.
Nevertheless, local news reports Thursday indicated that the state Pipeline Authority is contracting for a third party study of the longer-term trends in oil and natural gas production as the wells operating in the Bakken and Three Forks shale oil formations age and decline in production. An open question is whether gas production would drop off at the same rate as oil.
According to NGI's Shale Daily Unconventional Rig Count for the week ending Jan. 27, the Bakken/Sanish/Three Forks area is the second fastest growing unconventional play in the United States over the last year, second only to the Eagle Ford Shale. For the week, 202 rigs were actively searching for oil and gas in the play, up 22% from the 165 rigs operating one year ago.
Helms' latest report as of the end of November showed natural gas production continuing to rise, hitting a new all-time high of 521 MMcf/d as oil similarly reached an all-time high (509,726 bbl/d).
"Gas processing plant and gathering system construction activity has been very high but will now slow considerably due to colder weather," Helms said. "U.S. gas storage is 17% above the five-year average meaning low prices for the foreseeable future, and North Dakota shallow gas exploration is not economic at the current price [$2.23/Mcf at Watford].
"The result is an oil-to-gas price ratio of 39-to-1. The low value of processed natural gas does not justify investment in infrastructure, but the gas liquids make gathering and processing of Bakken gas economic." Thus, Helms said the industry is still shooting for $3 billion in infrastructure investments for the 2011-2013 period.
On the oil side, Helms said takeaway capacity, including pipelines, rail and truck transportation, is "adequate for near-term production projections." He said North Dakota sweet crude has been priced at a 14% discount compared with Nymex WTI due to a bottleneck at the Cushing, OK, hub.
"Rig counts in the Williston Basin are slowly increasing," he said. "Rigs will have to be built new to increase North Dakota's rig count since in the Rocky Mountain area utilization of rigs capable of plus-20,000 feet is more than 95%, but for shallow [7,000 feet or less] use remains at about 50%."
Eventually the study now getting under way may support additions to North Dakota's five gas pipelines, including MDU Resources Group's Williston Basin Interstate Pipeline Co., which already doubled its transportation capacity in the state in 2011 and is working to double it again this year, according to local news media reports.
With 3,700 miles of transmission, gathering and storage pipelines spread around the Dakotas, Wyoming and Montana, Williston has made it clear publicly it intends to expand its capacity in the Bakken.
Friday a unit of Plains All American Pipeline LP said it would construct a cryogenic gas processing plant to serve Bakken producers. Separately, Alliance Pipeline LP recently filed for a certificate for its previously announced Tioga Lateral project (see related story).