Up in Flames
October 31, 2013
A recent state report showed that oil and natural gas producers in North Dakota were flaring (burning it at the wellhead) 29 percent of the approximately 31 billion cubic feet of natural gas produced in the state in August. That’s about nine billion cubic feet of natural gas that never made it into people’s homes to provide heat or into factories to produce goods. To put this figure in perspective, the nine billion cubic feet of natural gas flared in a single month (more than $30 million at August natural gas prices) is enough to supply residential customers in North Dakota for most of an entire year. The state’s residential customers used 9.7 billion cubic feet of natural gas in 2012 according to the U.S. Department of Energy. Nor will private landowners collect royalties or the state collect production taxes on the flared gas. Nationally, only one percent of natural gas is flared.
Flaring can produce air pollution including volatile organic compounds such as benzene and the greenhouse gas carbon dioxide. Flaring might be better than venting natural gas (simply releasing it into the air) because methane, a major component of natural gas, is a more powerful greenhouse gas than carbon dioxide. However, those who live in gas-producing states should not have to choose between watching drilling companies vent or flare large amounts of gas. Natural gas that is produced should be put to use for home heating and other constructive purposes while also contributing to state tax revenues and royalty owners’ pocketbooks.
So why are companies in North Dakota flaring so much natural gas? One reason is likely price. Most of the drilling in North Dakota is for oil that had a high market price of almost $93 per barrel in August while prices for natural gas, produced as a byproduct of oil drilling, have been low for the past several years due to overproduction. Drillers have little incentive to invest in the infrastructure needed to market their gas when prices are so low, and so with no place to put the gas, they burn it.
Second, there is little legal incentive for drillers to use the gas. Current regulations in North Dakota allow oil drillers to flare natural gas for a year before taking steps to use the gas. Among the options available to drillers at the end of a year of flaring are capping the well, connecting the gas to a pipeline or using at least 75 percent of the gas to power an electric generator. Violating these provisions requires an oil producer to pay royalties on the value of the flared gas to the royalty owner and taxes on the value of the flared gas to the public’s coffers. However, oil drillers may obtain exemptions from this requirement by convincing the state’s industrial commission that marketing the gas or otherwise using it is economically infeasible. The commission has routinely issued such waivers, though the Bismarck Tribune reported last year that the commission has begun limiting the duration of time during which drillers can continue flaring before an additional review.
What can stop or reduce the flaring?
The North Dakota Oil and Gas Division is writing rules that will provide drillers with a tax incentive to reduce the amount of gas that is flared, but one state senator who fought unsuccessfully to limit flaring to one year predicts that flaring will likely continue, suggesting that the tax plan won’t be much of an additional inducement.
“That’s like paying people to go to church,” Sen. Tim Mathern told EnergyWire. “They should be doing it anyway.”
Another approach involves lawsuits. North Dakota minerals owners recently filed ten class action suits alleging that they are owed millions of dollars in royalties for gas that was improperly flared. The owners claim that the oil companies named in the suits flared gas during the first year of production in violation of North Dakota rules and continued to flare after the first year without obtaining exemptions. An oil and gas industry spokesman said he had not seen the suits, but was generally dismissive of the claims saying that companies have complied with state regulations.
Given the pace of drilling for oil in the state and companies’ poor record when it comes to limiting flaring, perhaps the best remedy is public pressure from citizens who simply don’t want to see North Dakota’s energy go up in flames. State Rep. Bob Skarphol suggested that approach to EnergyWire recently after repeatedly watching a thirty-foot flame from a well near his home in Tioga. "We're bright enough to know that that would heat a lot of homes," he said.comments powered by Disqus