Controversy “Flares” in North Dakota
“Rigzone” reports that the North Dakota Industrial Commission is taking testimony this week regarding a proposal to cut back on the state’s rapidly expanding oil development and production as a means of limiting the amount of gas that is being flared.
Virtually all oil wells produce a mixture of salt water, oil and natural gas which is separated into its components at the surface. The salt water is typically stored in tanks and later disposed of via injection wells. The oil is transported off the lease by vacuum truck or pipeline. In areas with adequate gathering and processing facilities, the gas is transported via pipeline. However, in the Bakken Shale in North Dakota rapid growth and lack of pre-existing infrastructure make this impossible in many cases. Consequently the natural gas is released into the atmosphere (vented), or burned (flared). While this problem is not unique to North Dakota, the lack of infrastructure and regulation has resulted in 36% of produced gas being flared. The average across the U.S. is 1% and worldwide 3%.
Given the high costs of drilling and completing wells, operators are understandably eager to start recouping their investment as soon as possible. Since oil is much more valuable, and immediately marketable, gas is being flared to accelerate oil production.
Landowners, regulators, residents and environmental groups have all expressed concerns. State regulations allow operators to flare gas for up to a year without having to pay severance tax, and extensions are commonplace. Landowners are concerned that their valuable resource is being burned without their receiving any royalty payments for it. The state is missing out on the severance tax, residents complain of the visual (20’ plumes of flame) and noise (the burning gas can sound like a jet plane, depending on proximity) pollution, and environmentalists fear the effects of the CO2 produced by the combusting gas.
However, delaying oil development and production would reduce royalty and severance tax payments for oil, cost jobs, and compromise and possibly pre-empt investment in new wells. Consequently, oil and gas operators propose self-imposed measures such as having to file a gas disposition plan as part of the application for a drilling permit, and specific plans for investment in gas gathering and processing facilities. The industry has already spent more than $6 billion and anticipates another $1.7 billion for gas infrastructure over the next two years. It is estimated that by 2016 these outlays will enable operators to capture and sell 85% of the gas currently being flared, and 90% within the next 6 years.
To read the article in its entirety, please go to www.rigzone.com/news/article_pf.asp?a_id=132721 .