Hard to Handle - Can Bakken Producers Finally Put a Lid on Gas Flaring?

Producers in the Bakken and the rest of North Dakota flared record volumes of natural gas in the fourth quarter of 2018 — an average of more than 520 MMcf/d, or about 20% of total production — far exceeding the state’s current 12% flaring target. What happened? For one, crude oil production in the play took off; for another, the gas-to-oil ratio at the lease continued to increase. And while some new gas processing capacity came online last year to reduce the need for flaring, the pace of the additions was too slow to keep up with the Bakken’s rising gas output. The good news is that 2019 will bring more incremental processing capacity to North Dakota than any year to date. Today, we discuss recent setbacks on the flaring-control front and the prospects for things getting better later this year.

Bringing gas flaring under control in the Bakken in the Shale Era has been akin to breaking in a wild horse: Just when you start to think you’ve accomplished the task at hand, the bronco’s bucking again and you’re holding on for dear life. As we said a while back in There’s a Fire in the Night, producers in western North Dakota have been struggling for the better part of this decade to process and pipe out an increasing share of the gas they produce — and to reduce the share of gas they need to flare off. Back in 2011 and again in 2014, as much as 37% of the state’s produced gas was being burned off due to a lack of processing and pipeline takeaway capacity. That spurred the North Dakota Industrial Commission (NDIC) to require producers to file a “gas capture plan” (GCP) with their drilling permits and to put in place flaring limits. The new rules limit flaring to one year after a well’s first production, by which time producers will have to either connect the well to a gas gathering pipeline, cap it, or link it to an electrical generator or a compression or liquefaction system that consumes at least 75% of the gas onsite. Regulators also set targets for reducing the share of produced gas that is burned off statewide: flaring no more than 26% of total gas production by November 2014, 23% by January 2015, 20% by April 2016, 15% by November 2016, 12% by November 2018 and 9% by November 2020.

Last November, as the 12% flaring target kicked in, we discussed (in Take It Easy) the NDIC decision — in light of rising flaring volumes — to stick with the new 12% goal (at least for now) and to provide additional flexibility to producers in their efforts to comply. Among other things, the commission replaced its original policy aims of reducing the volumes of gas that is flared, the number of wells flaring and the duration of flaring with the aims of increasing the volumes of captured gas, reducing the percentage of gas flared and incentivizing investment in gas capture infrastructure (gathering pipelines, processing plants, onsite use of gas etc.) The NDIC also agreed to allow producers to remove from their monthly volume calculations (1) any gas flaring tied to curtailments on gas gathering systems and processing plants, (2), any gas flaring resulting from newly completed wells being tied to the same gas infrastructure, and (3) any gas that is placed in geologic storage or used in enhanced oil recovery.

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