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News Extra: North Dakota to double pipeline capacity, reduce flaring

15 August 2014

Governor Jack Dalrymple of North Dakota has said the state will nearly double its oil and gas pipeline capacity within two years as part of a plan to curb the flaring of natural gas in the state’s Bakken oil field. Speaking at a June summit in Bismarck, the state capital, Gov. Dalrymple said new regulations and other measures would promote more pipeline development, helping decrease reliance on trucking and railroads.

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The state's Industrial Commission, a three-member regulator chaired by the governor, changed its policy on June 1 to require energy companies to submit a plan to capture any natural gas that could be released by a new well when filing for permits. Without a plan, applications for new wells will not be approved.

In addition, new rules for existing wells were announced on July 1. The goal is to reduce the amount of Bakken gas flared to 10% by 2020 from about 30% currently, against a nationwide average of 1%.

Oil production in North Dakota has more than tripled in the past decade to 1 million barrels of oil equivalent (boepd) per day, but state pipeline capacity has lagged. The governor said the state wanted to boost capacity to 1.4 million boepd by 2016 from about 780,000 boepd now.
The total number of producing wells rose to a record 8,758 in April 2014.

The production surge from Bakken took the energy services and transport industry by surprise leading to a lag in the construction of infrastructure to transport crude to the main markets on the Gulf and East Coast.

Some 75% of Bakken crude is currently transported by rail, according to the North Dakota Pipeline Authority, with only 17% by pipeline. Around 7% goes to Tesoro Corp's 60,000 barrel per day Mandan refinery in the state.

Many of the wells in the field are in remote areas some distance away from collection systems, and another problem is that the amount of gas produced by a well can shift dramatically over the course of a well's life making expensive pipeline hookups of marginal benefit much of the time.

The lack of pipelines also means that most Bakken crude moves by rail to refineries, which is more costly and can be more dangerous. A number of crude trains have derailed and exploded in recent years, the worst such incident taking place in July 2013 at Lac Megantic in Quebec, where 47 were killed.

Nevertheless, many refiners still prefer using rail to transport crude because it provides more flexibility than pipelines, which lock refiners into long terms.

Enterprise Products Partners LP has announced plans to build a 1,200-mile (1,900-kilometre) pipeline from Bakken to Cushing, Oklahoma, and WBI Energy Inc unveiled a $700m project to carry Bakken gas to eastern North Dakota and neighbouring Minnesota.

Oneok and some other pipeline operators have been working to build natural gas networks across North Dakota but have faced right-of-way issues, with some landowners refusing requests to allow pipelines to be laid across their land. State regulators are looking to remove this constraint, although the use of compulsory purchase (eminent domain) would be unpopular in the conservative state.

If pipelines are not available, oil companies can turn natural gas into fuel for use near wells with natural-gas-fuelled generators or liquefaction equipment.

The North Dakota Pipeline Authority estimates there are currently about US$ 9.5 billion in pipeline projects in the state, including US$ 6 billion dedicated to capturing natural gas and moving it to market. The state currently has 17,500 miles of oil and gas pipelines.

Meanwhile, shale oil expansion in Texas is also resulting in a rise in flaring. The State of Texas issued more than 3,000 permits to flare gas on oil wells in 2013, compared to 651 in 2011.
In Texas, all drillers can flare for ten days after drilling a well. They can then apply to extend flaring in 45-day increments, for a total period up to six months after drilling a well. To get an extension, the driller must demonstrate that they are trying to get infrastructure in place to collect the gas instead of burning it, according to the Texas Railroad Commission (TRC), which oversees drilling in the state.

The TRC and the its Eagle Ford Task Force plan to study whether existing state regulations on flaring and venting associated with oil and natural gas operations need to be updated, Commissioner David Porter said in a May news release.

“We must address flaring that is associated with the rapid industry expansion,” Porter said. “I have travelled the state extensively and seen first-hand that activity is outstripping capacity and awaiting pipeline infrastructure.”

He advocates reviewing flaring technologies to encourage the use of efficient, environmentally protective, and energy-saving flares. TRC will work in partnership with other state regulatory agencies to streamline air emission rules, monitoring, and reporting, he said.

Natural gas production has steadily gone up as pipeline infrastructure reaches more of the wells, and flaring still represents less than 1% of gas produced in Texas.

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