Natural Gas Flaring in the Bakken: Why Can’t it Be Stopped?

Photo Credit: Wes Peck via Flickr. com

Background

Flaring of natural gas from wells in Bakken formation has been on steady climb since commercial scale drilling started taking place

Background

For past 4 years, more than 33% of gas produced from wells has been

flared

The national average for gas flared at well, Bakken excluded, is 1%

BackgroundSo much gas is flared that it can be seen from space!

Photo Source: NASA

The Economic Issue

By flaring off natural gas, producers are forfeiting more than $4 million in potential

revenue every day

Photo Source: NASAPhoto Credit: Wes Peck via Flickr. com

The Economic IssueThat’s like doing

this….

Photo Source: NASAPhoto Credit: Wes Peck via Flickr. com

….1.4 billion times every year!!!

Photo credit: Images money via Flickr.com

BackgroundWhy is it taking so long to fix?• Long delays on permitting• Labor shortages• Short construction season (have you been to ND in

the winter?!?!)

All add up to oil and gas wells coming online faster than pipelines and processing plants

Photo Source: NASA

Regulators looking to step in

The North Dakota Industrial Commission plans to implement regulations that would reduce gas

flaring to less than 10% of total gas produced by 2020

Photo Source: NASA

Regulators looking to step inPart of industrial Commission regulations would require companies

to submit a gas capture plan to obtain a drilling permit

Photo Source: NASAThis could potentially slow drilling and development in the region

Photo Credit: Wes Peck via Flickr. com

Is there hope in sight?3 major projects online/under construction• Hess Corp. Tioga Gas plant expansion (140 mmcfd)• ONEOK Partners Gas Plants– Garden Creek (200 mmcfd, online Q1 2015)– Lonesome Creek (200 mmcfd, online Q4 2015)

Enough capacity to process all gas flared today, but more wells will come online

Photo Source: NASA

Are there other options?

Photo Source: NASA

Are there other options?General Electric’s CNG-in-a-Box• A Small scale, mobile natural gas processing system that

separates natural gas liquids and compresses dry gas on site

• Liquids can be trucked off site for sale and compressed natural gas can be used as diesel replacement at wellhead for generators, fleet vehicles.

• GE is partnering with Statoil to test the idea

Photo Source: NASA

What does this all mean to me?

Companies that generate large portions of their oil production—think Continental Resources, Kodiak Oil & Gas, Oasis Petroleum—could see their production growth slow if gas capture plans are required for all wells, especially if gas infrastructure continues at its slow pace. Their one option for preventing this would be to find other methods for capturing gas such as GE’s CNG in a box. Investors should watch for announcements that producers in the region have developed gas capture alternatives, because these companies will likely have the greatest success in the future.

Photo Source: NASA

OPEC’s Worst Nightmare…