Posted 9/29/15 (Tue)
By Neal A. Shipman
No one is going to argue that the flaring of the natural gas coming from North Dakota’s oil wells is a tremendous waste of a valuable resource. That is why several years ago, the state’s Industrial Commission put into place regulations that required oil companies to capture that resource or face penalties if they didn’t achieve North Dakota’s Gas Capture Goals.
Those goals were working. The state was seeing a very significant reduction in the amount of gas that instead of being wastefully flared, was being processed within North Dakota or being shipped out of state on pipelines. And that was good news not only for the state, which was seeing increased revenues, but to the mineral owners who were receiving royalty payments for the natural gas that was now being sold rather than being flared off.
But the decline in oil prices, as well as the continued drilling of new wells in western North Dakota has created the perfect storm where achieving those goals is no longer sustainable for the oil companies. Under today’s low oil price market conditions, North Dakota has hundreds of wells that have been drilled, but haven’t been put into production. Plus, there is a backlog for new pipeline construction to carry the gas to plants in the state or to be transported out of state.
Quite literally, the dilemma that the state’s Industrial Commission was facing last week as they considered relaxing North Dakota’s Gas Capture Goals was how to keep the state’s oil industry moving forward in these tough economic times. They could either hold the oil companies feet to the fire in meeting the flaring requirements, which would result in less drilling activity, or they could grant oil companies an extension in meeting those gas capture guidelines and keep oil development going.
In the end, the Industrial Commission made the right choice by granting the oil companies an 10 extra months to reduce the amount of natural gas being flared. The state is showing its willingness to work with the oil industry in these turbulent times.
As representatives of the oil industry testified, great progress has been made in reducing the amount of natural gas flaring. The industry has reduced flaring from 36 percent in 2013, to 18 to 19 percent today. To date, the oil and gas industry has constructed $11 billion in infrastructure needed to reduce flaring with another $2 billion in infrastructure currently under construction.
Building out the needed pipelines and other infrastructure that will bring the oil companies back into line with the state’s natural gas flaring standards is going to take some time. By granting the industry a 10-month extension on meeting those flaring guidelines seems like a small price for the state to pay. The only other option was to hold the industry to the existing standards and then watch as more rigs are idled, wells are shut in, and oil production falls.
The Industrial Commission made the difficult, but correct decision in granting the 10-month extension.