Crude oil prices and, just as important, the availability of pipeline takeaway capacity, have supported continued production growth in the Bakken. Good news, right? Except, that’s led to sharply increased output of associated gas in a region that for years has been playing catch-up on the gas processing capacity front. As a result, gas-flaring volumes have soared this year, putting pressure on crude-focused producers to slow down their drilling-and-completion activity. Things are finally getting better, though — 670 MMcf/d of processing capacity has come online in western North Dakota since late July, and another 200 MMcf/d will start up next month. That gives Bakken producers some room to grow but also poses a problem for Western Canadian producers, namely that more pipeline gas out of the Bakken means less room for Alberta and British Columbia gas on pipes to the Midwest. Today, we begin a short blog series on incremental Bakken gas processing capacity and its impacts on producers — and natural gas prices — up in Canada.
After falling 23% from 1.16 MMb/d in December 2014 to 895 Mb/d in December 2016, crude oil production in the Bakken has rebounded with a vengeance over the past two years, rising to a record 1.46 MMb/d in October 2019, according to the most recent data from the North Dakota Oil & Gas Division (blue area in left graph in Figure 1). (Data from IHS Markit’s PointLogic Energy suggest production has remained at a similar level since then.) Higher oil prices through most of 2017-19 helped make that 63% increase since December 2016 possible, but so did the June 2017 startup of the Dakota Access Pipeline (DAPL), which freed producers from pipeline takeaway constraints that had dogged them since soon after Bakken production took off back in the early 2010s.
Figure 1. Bakken Crude Oil and Natural Gas Production and Gas Flaring, 2010-19. Source: North Dakota Oil & Gas Division (Click to Enlarge)
The run-up in crude oil production in western North Dakota brought with it huge increases in the production of associated gas — that is, the gassy brew of natural gas and mixed NGLs that emerge from Bakken wells with the crude. Oil & Gas Division stats show that, in October 2019, Bakken gas production (green area in right graph in Figure 1) averaged more than 3 Bcf/d for the first time ever (3.03 Bcf/d, to be exact); it’s up a whopping 106% from December 2016, in part because many of the most prolific wells for producing crude oil have high gas-to-oil ratios (GORs). But of that 3.03 Bcf/d of gas produced, nearly 530 MMcf/d (yellow line in right graph), or 17%, was burned off or flared, mostly due to a lack of sufficient gas processing capacity. (Again, PointLogic data suggests gas production in the Bakken stayed steady in November and December.) We’ve written about gas flaring in the Bakken many times, most recently in Hard to Handle, when we said that bringing it under control 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.
The way to rein in gas flaring, of course, is to put in place the infrastructure — gathering systems, gas processing plants, and gas and NGL takeaway pipelines — needed to handle all the associated gas that’s emerging from wells. The problem has been that while Bakken producers and their midstream-company partners may have been trying their best to anticipate what their upcoming gas-related infrastructure requirements will be, they’ve generally been behind the curve in adding gas processing capacity during the 2010-14 and 2017-19 boom periods. Now, they finally appear to be catching up.
As shown in Figure 2, gas processing capacity in the Bakken has been increasing by fits and starts through the first two-thirds of this decade, from less than 500 MMcf/d at the end of 2010 to more than 2.0 Bcf/d at the end of 2016. But with the big slow-down in crude oil and gas production in 2015-16, plans for a number of additional processing plants were scrapped or delayed, and when production growth took off again in 2017, midstreamers once more were forced to play catch-up. Only 107 MMcf/d of new gas processing capacity was added in 2017, and another 215 MMcf/d came online in 2018. 2019 turned out to be the biggest year yet for new processing capacity in the Bakken: a record 710 MMcf/d has started up in the past 11 and a half months (yellow bar segment within dashed orange oval), giving the region a total of nearly 3.2 Bcf/d — seemingly enough to handle all the gas that the play produces.
Figure 2. North Dakota Gas Processing Capacity, 2010-21. Source: North Dakota Oil & Gas Division (Click to Enlarge)
All of the new processing capacity added in the Bakken over the past three years has been built — and all of the 625 MMcf/d of additional capacity slated to come online in 2020-21 is sited — within the four-county area in western North Dakota that is the epicenter of Bakken production; the counties in question are McKenzie, Williams, Mountrail and Dunn. In 2019, all four of the big processing capacity additions have occurred in the past five months:
- In late July, a joint venture of Targa Resources and Hess Midstream Partners brought online their 200-MMcf/d Little Missouri 4 gas processing plant south of the Missouri River in McKenzie County.
- In August, Crestwood Equity Partners started up its 120-MMcf/d Bear Den II processing plant in Watford City (also in McKenzie County), and expanded the pipeline network that connects the partnership’s Arrow gathering system to the Bear Den processing complex. (The 30-MMcf/d Bear Den I plant came online in 2018.) Bear Den has downstream connections to the Northern Border Pipeline for residue gas (more on that later), and to ONEOK’s new Elk Creek Pipeline for NGL takeaway.
- In October, ONEOK began operating its 200-MMcf/d Demicks Lake I processing plant in McKenzie County. Like Bear Den, Demicks Lake I is linked to both Northern Border — which is 50%-owned by ONEOK — and to the company’s Elk Creek NGL pipeline. The Demicks Lake project was among those put on hold a few years ago.
- Finally, last month, Kinder Morgan started up a new 150-MMcf/d processing plant at its Roosevelt complex near Watford City (once again, in McKenzie County).
And more gas processing capacity is on the way. In January 2020, ONEOK plans to bring online Demicks Lake II, another 200-MMcf/d plant, and in the first quarter of 2021 it plans to start up the 200-MMcf/d Bear Creek II plant in Dunn County. Also, in mid-2021, Hess Midstream plans to add another 150 MMcf/d of processing capacity at its Tioga complex north of the Missouri River, in Williams County.
We would expect that, as the processing plants that came online in the Bakken in the past few months ramp up to full capacity, the volumes of gas being flared will decline, and flows on Northern Border and other pipelines that take gas out of the Bakken to the Midwest and other markets will increase significantly. That’s a big deal, because as we said in our Push and Shove blog a few months ago, capacity on the Bakken’s two gas takeaway pipelines — Northern Border and Alliance, which also transport Western Canadian gas to the Midwest — has been maxed out for a few years now. The result is that Bakken gas is increasingly squeezing out imports from Alberta and British Columbia, and the raging battle between the Bakken and Western Canada for pipeline space is likely to heat up. We’ll discuss that part of the story in an upcoming blog.
"The Battle Rages On," written by Ritchie Blackmore, Ian Gillan, Jon Lord and Ian Paice, appears as the first song on Deep Purple's 14th studio album of the same name. The basic tracks of the album were recorded at Bearsville Studios in Woodstock, NY, with vocals and overdubs done at Red Rooster Studios in Tutzing, Germany, and Greg Rike Studios in Orlando, FL. The album was mixed at Sound on Sound in New York City and Ambient Recording Company in Stamford, CT. The Battle Rages On LP was produced by Thom Panunzio and Roger Glover, and released in July 1993. It went to #192 on the Billboard Top 200 Albums chart. Personnel on the record were: Ian Gillan (vocals), Ritchie Blackmore (guitar), Jon Lord (keyboards), Roger Glover (bass) and Ian Paice (drums). Ritchie Blackmore left Deep Purple for good after a gig in Helsinki in November 1993 supporting The Battle Rages On album. Guitarist Joe Satriani was hired as a temporary replacement so the band could finish the tour.
Deep Purple is an English rock band formed in Hertford, England, in 1968. The group is considered to be one of the pioneers of modern hard rock and heavy metal music. It has released 20 studio albums, 35 live albums, 21 compilation albums and 44 singles. Deep Purple was inducted into the Rock and Roll Hall of Fame in 2016, and won an Ivor Novello Award in 2019. Fifteen people have passed through the ranks of the band over the years. The current lineup includes original member Ian Paice along with Ian Gillan, Roger Glover, Steve Morse and Don Airey. The band will begin a major European tour starting in June 2020.