ND flaring nearly $3.6M in gas daily
WILLISTON -- A new report estimates North Dakota's flaring of natural gas wastes $3.6 million each day and urges state regulators and industry leaders to take aggressive action.
Flaring Up, a report released Monday by Ceres, a Boston-based organization founded by a group of investors after the Exxon Valdez oil spill, highlights the long-term economic waste and environmental damage of flaring.
"What we're worried about here is the industry seems to be focused on the quick buck," said Andrew Logan, co-author of the report and director of Ceres' oil and gas program. "Investors are actually taking a long-term view of how do you ultimately maximize the positive benefits of this resource?"
The report's findings include:
V Between May 2011 and May 2013, volumes of flared gas have more than doubled, even though the percentage has decreased.
V In 2012, flaring resulted in the loss of about $1 billion in fuel.
V North Dakota emitted 4.5 million metric tons of carbon dioxide in 2012, equivalent to adding 1 million cars to the road.
State officials said Monday they agree that flaring natural gas is wasting a valuable resource, but it will take time to develop the pipelines and infrastructure to capture it.
"The industry realizes the value of that gas," said Justin Kringstad, director of the North Dakota Pipeline Authority. "Everyone wants to monetize the value in that gas as quickly as we can."
The state aims to reduce the percent of natural gas that's flared from the current rate of 29 percent to less than 10 percent in the next decade, said Alison Ritter, spokeswoman for the North Dakota Department of Mineral Resources.
But even if the state achieves the 10 percent goal, North Dakota will still flare more natural gas than it did in 2010, the report says.
The report estimates that Bakken natural gas, which is rich in liquids such as propane and butane, could be worth a market price of $13.50 per thousand cubic feet before taxes and transportation costs.
The value of the Bakken natural gas is not fully appreciated, Logan said. It's not that companies will lose money by capturing the natural gas, but they would make less money in the short-term than if they put all that money into oil production, Logan said.
Tax incentives approved during the recent legislative session are a start to addressing the problem, the report says, but stronger state regulations are needed.
"It comes down to how you think about the resource. The oil is not going anywhere," Logan said. "If the state is able to take a somewhat more deliberate approach to the pace of development, that's one way to begin to corral the problem."
The North Dakota Industrial Commission has two policies that relate to flaring.
Companies receive a one-year exemption from paying taxes and royalties on flared natural gas. The Department of Mineral Resources does not receive many requests to extend that exemption, Ritter said.
The second policy varies depending on the field, but in general it requires operators that are flaring to reduce the amount of oil production according to a specified schedule. For example, operators could be required to reduce production to 200 barrels per day after 60 days and to 150 barrels per day after another 60 days.
However, many operators apply for an extension to that policy and nearly all requests for extensions are granted, according to Sen. Tim Mathern, D-Fargo, who said he examined the requests in an effort last legislative session to push for stronger flaring regulations.
"It was like almost automatic that an extension was granted," Mathern said Monday, calling the state's efforts to reduce flaring "woefully inadequate."
Ritter said if the department rigorously enforced that policy, it would reduce the cash flow of the well and deny operators and pipeline companies the opportunity to evaluate the size of the well.
In turn, that would slow down the development of pipelines to capture the natural gas, Ritter said.
Operators are not given a blanket extension, but are required to come back every six months, she added.
The report calls North Dakota's flaring regulations are "unusually permissive" when compared with other resource-rich states such as Texas, California or Alaska, and its flaring rate is correspondingly higher.
The report applauds companies Whiting Petroleum, Hess Corp. and Continental Resources for setting goals of reducing flaring emissions, some as close to zero as possible.
But more companies need to set such goals and work together to exchange best practices, Logan said.
The two primary challenges to capturing the natural gas are a lack of pipelines and the size of infrastructure that's in place, Kringstad said.
The industry is aggressively investing in new pipelines, with 2,300 miles installed in the ground in 2011, Kringstad said, equivalent to the distance from Seattle to Washington, D.C.
Five natural gas processing plants are being constructed or expanded in the state, and industry leaders and researchers are developing flaring alternatives.
"Everyone has the same common goal," Kringstad said.
Investors worry, however, that a perceived lack of action by North Dakota and the industry could prompt federal intervention, Logan said.
"Our sense is that if industry doesn't get more aggressive with dealing with flaring, that could bring real risks," Logan said.