The new Hellfighters

NDIC gears up to enforce stringent new gas flaring regulations coming into effect

By Rebecca Colnar

6-1

Photo courtesy: Northland Securities Inc.

Gas flaring in the Bakken has been making worldwide news.  Everyone is concerned about it, from industry and mineral owners to environmental groups and politicians. The Ceres Group shows a map of the U.S. at night with the Bakken lit up like Minneapolis and New York, due to all of the flared gas. Those bright lights aren’t good in anyone’s opinion.  To combat concerns about gas flaring, the State of North Dakota has embraced and established tough new regulations that the oil/gas industry must comply with by October 1st.

What industry has to say

Ron Ness, president of the North Dakota Petroleum Council, provides background.  “North Dakota and Montana have been oil states, not gas. In the past, we have seen associated gas in the oil, but historically it’s been dry gas in minimal amounts. As we developed the Bakken, however, there was associated gas coming at about a thousand cubic feet to a barrel, and we discovered that Bakken gas is extremely liquid-rich.”

Oil companies originally believed they could use their standard field-processing units to strip out the natural gas byproduct and use it for home heating. Then the realization came that liquid-rich gas was going to take unique processing. This resulted in a change in the approach to managing the gas and in the case of the state’s largest fractionating gas plant, it searched worldwide for technology to expand gas processing to the full capacity; but ultimately, had to design a new technology to handle this liquid-rich natural gas.

“We have a situation where the technology has rapidly grown for oil production, but the natural gas infrastructure is too small,” explains Ness. “We need to build substantially more gas-processing infrastructure. We will likely need to keep building well into the future as our gas production continues to grow… We also realized that we needed to explore and develop new markets for natural gas liquids in the state or region.”

He says big contributing factors in the lack of rapid infrastructure growth are the natural challenges. Winter are long, the ground freezes hard early, and the construction season is short, limiting the time new gas-processing facilities and pipelines can be constructed. Another dilemma: gas can’t be trucked; it has to be transported in a pipeline.

Ness explains that industry doesn’t want to flare the resource, but that they are in a learning curve. The resource the Bakken produces is about 98.5 percent oil versus the other shale plates that are gas.  “We’re the learning curve for the next oil shale plate.”

Photo courtesy: Dan Larsen.

Photo courtesy: Dan Larsen.

Ness explains that the Bakken is strikingly different from other basins, such as the Permian Basin in Texas. “There, you are close to liquid-gas markets, there is a huge infrastructure network and the weather conditions are favorable for laying pipelines most of the year. “We’ve struggled with some Indian reservations to get easements for pipelines. So it’s a lot more difficult in this part of the country to build infrastructure.  However, our goal is to capture that gas and hopefully we continue to move in the right direction.”

One other contributing factor is the amount of production of oil/gas in the Williston Basin.

“A company would go into the Bakken and thought they would have one or two wells per site. But there was so much oil, you’d then have four, then eight, then 14 wells,” Ness states. “It’s not like the industry hasn’t done anything. We’ve spent $6 billion trying to get better at producing the resource. We are at the point where we need to find sufficient markets for liquids.”

“Nobody wants that gas more than the operator and mineral owner,” notes Ness. “It’s valuable. If you can strip the liquids and sell the dry gas, there is tremendous potential. We just have to get a market for the liquids. But first, of course, you have to have the infrastructure. I believe the infrastructure capable of handling this gas is coming. The new rules will certainly tighten the noose on the ability to flare and that may have an impact.”

What about those regulations?

“Last year on September 11, Governor Jack Dalrymple came to our meeting. He said that flaring rules need to change and industry could be part of the process or one would be developed by government agencies,” Ness relates.

Thus the North Dakota Petroleum Council Flaring Task Force was formed and met over a four-month period, where members developed a workable plan to curb gas flaring and presented their findings to the North Dakota Industrial Commission (NDIC). On July 1, 2014, the North Dakota Industrial Commission announced the new rules. The basics: a company needs to meet the new regulation standards for flaring or their production will be curtailed.

Ness noted that the commission used many of the taskforce’s suggestions, but laments the rule is front-loaded with production curtailment, versus the phase-in options approach the taskforce had suggested. “We don’t believe in curtailing the production, which in turn curtails investment. But that’s what they said: production will be curtailed if you don’t meet the targets.”

“If we can get some value-added energy facilities built in North Dakota, they can benefit our farmers and citizens in the state and add diversity. At the end of the day, I’m hoping all of this rhetoric about flaring in North Dakota proves that there was value to it in the end,” Ness states.

Hess’s Tioga Gas Plant expansion in Tioga, North Dakota. Photo courtesy: Hess.

Hess’s Tioga Gas Plant expansion in Tioga, North Dakota. Photo courtesy: Hess.

Bruce Hicks, assistant director, North Dakota Industrial Commission, commented on the rule. “On July 1, the North Dakota Industrial Commission signed an order that set the allowance for the Bakken wells that were completed. We believe it’s realistic.  All the companies need to be in compliance by Oct. 1st. We are at the point now where operators are infield drilling, so it was a good place to reduce the amount flared and start putting in more infrastructure.”

By complying with the new rule from the NDIC, 74 percent of gas will be captured by October 1, 2014; 77 percent by January 1, 2015, and 90 percent by October 1, 2020.

Hicks says if a company can capture the gas production by 74 percent in some manner by Oct. 1, then their production won’t be restricted. “If a company can’t meet it, there are other ways to determine the capture, either on a countywide basis or by the field that would allow the well to produce at the maximum effective rate,” explains Hicks. “But if those numbers are too high, the well will be restricted.”

The goal of the NDIC is to reduce the number of wells, the total volume being flared, and reduce the duration so they aren’t flaring as long. The commission will look at the results and see if that order should be modified or not.

Justin Kringstad works directly with the industry to increase understanding of production levels, pipelines needed, and serve as an independent source of information for the industry and the public. He will be working with the industry to help them meet the new flaring reduction targets and help with new tools in order to ensure those targets are met.

“This associated gas, as it’s called, has to be handled differently. There is tremendous value to capture it from an operator, owner and environmental perspective,” says Kringstad. “It’s in the best interest of the operator, mineral owner and environmental perspective to capture this resource and get it to market.” Kringstad lists three components to address challenges caused by the natural gas: gathering, processing and transmission.

Photo courtesy: Hess.

Photo courtesy: Hess.

“We need to gather the natural gas from the well, then get it to the processing facility, and we need to expand our gas processing capabilities. We expect the amount of gas will continue to rise over the next 10 years, which means it’s crucial to put additional infrastructure in place for capturing gas,” explains Kringstad.

He explains the real challenge is that oil and water can be moved by truck; natural gas has no other option but a pipeline to get gas from a well-site to a processing facility. Some companies are studying alternatives to compress or liquefy the gas until a pipeline can be constructed, but according to Kringstad, those models are only in the development phase.

Kringstad says in 2013, North Dakota had more than 2,500 miles — that’s Seattle to Orlando — of new pipeline set in one year.  “There is a very active pipeline industry in North Dakota, and they are getting the pipe in the ground as quickly as they can. But it will take a lot more infrastructure going forward. Systems built several years ago have proven to be undersized for the current drilling activity. They thought the pipeline would be adequate but as more wells are developed, they have to put in second pipes alongside the original or add compressor stations to move more product.”

Two-thirds of the gas flared is from wells that have a pipeline connected to them, but it’s still not enough to handle the growing volume of gas.  So companies not only need to build new pipe to new wells, but also enhance existing infrastructure in order to keep pace with new drilling techniques.

According to the Natural Gas Facts (http://northdakotapipelines.com/natgasfacts/) from North Dakota Pipelines: “In December 2012, North Dakota produced roughly 25 billion cubic feet of natural gas. That month, 71 percent of North Dakota’s natural gas was captured and sold to consumers, while 29 percent of the natural gas was flared due to a lack of pipelines or space on existing pipelines. According to the most recent data available from the U.S. Energy Information Administration and World Bank, North Dakota accounted for 27.6 percent of total U.S. flaring and only one percent of world flaring.”

Kringstad believes the industry is working hard to meet that goal of 90 to 95 percent of natural gas captured by the last quarter of 2020, and to meeting the benchmarks prior to that date.  “Industry is working to make investments in pipelines and meet the targets set by the rule. Companies certainly don’t want to see a reduction in their well production. We expect natural gas production to continue to increase for many more years. The increase requires expanding existing pipeline and processing systems to keep pace with rapidly evolving production techniques,” concludes Kringstad.

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