Shotgun Rider - Natural Gas Production Takes Front Seat in the Oil-Driven Bakken Shale as Rigs Return

For as long as producers have been drilling in the Bakken Shale — the oil-rich formation straddling North Dakota and Montana (plus Saskatchewan and Manitoba in Canada) — associated natural gas, an inherent byproduct, has taken a back seat to crude oil production from the play. In fact, at one point nearly 50% of Bakken’s produced natural gas was being flared, in large part due to limited midstream capacity to gather, process and move the gas to market. But that’s changed in the past couple of years. Substantial midstream capacity has been built. Flaring has eased considerably, and with the shift in drilling activity to the best, most productive acreage, the gas-to-oil output ratio has increased. Add to that rising rig counts and productivity gains in those sweet spots and that phenomenon becomes amplified. The result is that while oil production has largely stagnated this year below peak levels, associated gas volumes from the play climbed to a record high this past May. But will this trend be sustained, and, if so, what will it mean for gas flows, takeaway capacity and gas-on-gas competition at the Canadian border? Today, we begin a blog series looking at gas production trends in the Bakken and implications for gas pipeline flows as well as competing supplies.

As Figure 1 below shows, until late 2014, gas production volumes (orange line and left axis) in the Bakken generally had a symbiotic relationship with oil production (blue line and right axis). From 2012 to 2014, when oil prices were above $80/bbl, rig counts were stable and oil production was growing, natural gas production was growing too. In that time, oil output — based on production data from our friends at PointLogic Energy — more than doubled, from nearly 600 Mb/d in early 2012 to a peak of 1.26 MMb/d in December 2014. Gas volumes from the play followed a similar trajectory during that period, climbing from less than 400 MMcf/d in early 2012 to about 900 MMcf/d by the end of 2014. From that point, oil and gas volumes began to diverge, a shift that traces back to the oil-price collapse that started in mid-2014. 

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