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North Dakota Industrial Commission OKs order targeting gas capture, flaring

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Natural gas is flared in April 2018 at an oil well site north of Ross, N.D. Tom Stromme / Bismarck Tribune
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BISMARCK — State regulators green-lighted a measure Tuesday, Dec. 17, aimed at speeding up investments in the transportation and processing of natural gas, an effort they hope will reduce wasteful flaring in the Bakken.

Flaring reached an all-time high this summer in North Dakota, and the most recent data show just 82% of gas produced is captured at well sites while the rest is burned off. That falls below the statewide target of 88%, which will jump to 91% next November. If companies don't meet the goals, the state can impose penalties.

“We’re not there because the infrastructure has lagged behind gas production,” Mineral Resources Director Lynn Helms told the Industrial Commission.

The commission, which is chaired by the governor and regulates the oil and gas industry, approved an order that lets producers and companies that purchase their gas enter into contracts that allow for “firm service.” A firm commitment guarantees space for the producer’s gas on systems such as pipelines.

The order clarifies that a firm commitment does not constitute “discrimination” against other producers that use the same pipeline but have different contracts that allow companies that purchase their gas to curtail shipments if, say, a line becomes full.

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In return, producers who enter firm commitments will essentially guarantee a supply of gas to a purchaser who could then choose to process it at a plant. If for some reason the gas is not delivered, the producer would make payments to the purchaser. Helms said such a guarantee lowers the risk for investing in new gas gathering and processing facilities.

“We should be able to break out of this paradigm of always being a year or two behind the production curve,” he said.

Helms said companies involved in gas gathering and processing currently make investment decisions based on the volume of gas flared. Once they decide to pursue a new project, they might have to order compressors, which can take as long as 40 weeks to get in place in the field.

But with a firm commitment of gas from a producer, a processor could decide earlier on to build a new facility “and have infrastructure there when the gas starts to come out of the ground,” Helms said.

He anticipates the order will help accelerate projects by as much as two years. He estimates companies will need to invest $18 billion in natural gas infrastructure over the next 20 years if the state is to meet its flaring goals.

Gov. Doug Burgum said it’s important North Dakota find ways to attract that investment because the Bakken has competition “around the globe competing for that capital.”

The order authorized by the Industrial Commission requires that 10% of space on a system such as a pipeline be reserved for other types of contracts in case some producers don’t want to make a firm commitment.

“This is optional,” Burgum said. “People can keep doing it the way they’re doing it today or if they feel this is a tool that helps them share economic risk and do better economic planning, they can (use it).”

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The Oil and Gas Division, which is an arm of the Industrial Commission, held a hearing on the issue in November. The state received several comments from mineral owners concerned that the more expensive firm service would result in larger deductions taken out of their royalty checks.

Some gas producers deduct “post-production costs” for expenses associated with getting gas from a wellhead to market.

Helms said Tuesday that while firm service could increase those costs, “a larger deduction from a royalty payment is a lot better than flaring the gas and making no royalty payment.”

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