Released April 14, 2015 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--North Dakota's initiative to reduce natural-gas flaring has caused some companies to voluntarily reduce crude-oil production, and the state has imposed production restrictions on six oil & gas producers so far this year, according to the North Dakota Industrial Commission (NDIC) (Bismarck, North Dakota), the state's oil and gas regulatory agency.
One firm, Emerald Oil Incorporated (NYSE:EOX) (Denver, Colorado), has had restrictions imposed in all four months of 2015, NDIC spokesperson Alison Ritter told Industrial Info. North Dakota's flaring-related production restrictions have removed about 12,000 barrels of oil per day (BBL/d) of Bakken crude from the market, she estimated. The state has about 12,000 producing oil and gas wells.
"We're really pleased with how the (flaring restriction) process is working," Ritter said. "Our state is blazing a trail--pardon the pun--when it comes to regulating associated gas from shale formations. We're adapting, and we'll continue to adapt."
Crude-oil production in the Bakken Shale has surged in recent years to an estimated 1.3 million BBL/d, from less than 400,000 BBL/d in 2011. Natural gas produced as a by-product of crude-oil production is called associated gas. The associated gas in the Bakken has a high percentage of natural gas liquids (NGLs), like ethane and propane, that must be removed before the gas can be put into a pipeline. On a state-wide basis, producers have flared as much as 36% of their gas in recent years because there was inadequate gas-gathering or gas-processing infrastructure.
Click on the images at the right to see the amount of gas flared in North Dakota between 2010 and 2014.
States with a longer history of oil and gas production, like Texas, flare only about 1% of associated gas. These more mature markets have a more established infrastructure of gas gathering and gas processing assets to bring that associated gas to market. For more on North Dakota's flaring issue, see September 25, 2013, article - Gas-Gathering Network is Achilles' Heel for North Dakota Energy Industry, and February 6, 2015, article - Natural Gas, NGL Projects Swell ONEOK Partners' Book of Business.
Last year, the NDIC enacted Order 24665 to reduce the volume of flared gas, reduce the number of wells flaring, and reduce the duration of flaring from wells. That order required producers to reduce flaring to 26% of production volume during the fourth quarter of 2014. Starting January 1, 2015, flaring volumes would fall to 23% of production. Producers who exceed that limit face production restrictions at particular wells. Starting next year, gas flaring will be limited to 15% of production, and in October 2020 only 10% of gas can be flared.
Ritter estimated one-third of the gas flared today comes from producers who are not connected to a gas-gathering system. The remaining two-thirds of flared volumes come from producers who are connected to a gas-gathering system, but that system lacks adequate capacity to accommodate these producers' volumes. In an interview, she said there is adequate processing capacity to handle current levels of associated gas production.
The amount of gas flared in North Dakota has dropped sharply since October 2014, when the NDIC's order became effective. This reduction is a function of several factors, including low crude-oil prices, new gas infrastructure coming online, and the threat of production restrictions for companies that exceed the flaring percentages. Starting in January 2015, when certain wells flared more gas than allowed, the NDIC began restricting production at those wells. Production at those out-of-compliance wells has been cut to either 100 or 200 BBL/d, depending on how much those wells exceeded flaring limit.
On a state-wide basis, the NDIC said flaring volumes fell to the levels mandated in Order 24665 during the fourth quarter of 2014. In January, the NDIC said gas flaring volumes were 22% of production, slightly under the statewide limit. However, several producers exceeded the flaring limits, and have been ordered to reduce production:
"Oil price is by far the biggest driver behind the slow-down, with operators reporting postponed completion work to avoid high initial oil production at very low prices and to achieve NDIC gas capture goals," Helms said in his March 12 report.
"We have over 800 wells that are awaiting completion," Ritter added. "A lot of producers are opting to self-restrict their crude-oil production if there is inadequate gas gathering or processing capacity." She said the commission recognized the chicken-and-egg situation facing some producers: "This is associated gas, and pipeline companies won't build infrastructure for associated gas before a well is flowing."
Some producers were opting for onsite storage of the gas. But many others are opting to postpone well completions until crude-oil prices come back, gas infrastructure is completed, or both.
"This regulation is having the desired effect of reducing the amount of natural gas flared in North Dakota," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "From an environmental perspective, the state is taking a huge step forward. An unintended consequence of the rule is that it also removes some crude oil from an over-supplied market, which will make a small contribution to balancing supply and demand. The rule also may create a 'catch-up' period for producers and infrastructure companies to better match production capacity with gathering capacity--never an easy thing when the market is as dynamic as it has been in the Bakken."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
One firm, Emerald Oil Incorporated (NYSE:EOX) (Denver, Colorado), has had restrictions imposed in all four months of 2015, NDIC spokesperson Alison Ritter told Industrial Info. North Dakota's flaring-related production restrictions have removed about 12,000 barrels of oil per day (BBL/d) of Bakken crude from the market, she estimated. The state has about 12,000 producing oil and gas wells.
"We're really pleased with how the (flaring restriction) process is working," Ritter said. "Our state is blazing a trail--pardon the pun--when it comes to regulating associated gas from shale formations. We're adapting, and we'll continue to adapt."
Crude-oil production in the Bakken Shale has surged in recent years to an estimated 1.3 million BBL/d, from less than 400,000 BBL/d in 2011. Natural gas produced as a by-product of crude-oil production is called associated gas. The associated gas in the Bakken has a high percentage of natural gas liquids (NGLs), like ethane and propane, that must be removed before the gas can be put into a pipeline. On a state-wide basis, producers have flared as much as 36% of their gas in recent years because there was inadequate gas-gathering or gas-processing infrastructure.
Click on the images at the right to see the amount of gas flared in North Dakota between 2010 and 2014.States with a longer history of oil and gas production, like Texas, flare only about 1% of associated gas. These more mature markets have a more established infrastructure of gas gathering and gas processing assets to bring that associated gas to market. For more on North Dakota's flaring issue, see September 25, 2013, article - Gas-Gathering Network is Achilles' Heel for North Dakota Energy Industry, and February 6, 2015, article - Natural Gas, NGL Projects Swell ONEOK Partners' Book of Business.
Last year, the NDIC enacted Order 24665 to reduce the volume of flared gas, reduce the number of wells flaring, and reduce the duration of flaring from wells. That order required producers to reduce flaring to 26% of production volume during the fourth quarter of 2014. Starting January 1, 2015, flaring volumes would fall to 23% of production. Producers who exceed that limit face production restrictions at particular wells. Starting next year, gas flaring will be limited to 15% of production, and in October 2020 only 10% of gas can be flared.
Ritter estimated one-third of the gas flared today comes from producers who are not connected to a gas-gathering system. The remaining two-thirds of flared volumes come from producers who are connected to a gas-gathering system, but that system lacks adequate capacity to accommodate these producers' volumes. In an interview, she said there is adequate processing capacity to handle current levels of associated gas production.
The amount of gas flared in North Dakota has dropped sharply since October 2014, when the NDIC's order became effective. This reduction is a function of several factors, including low crude-oil prices, new gas infrastructure coming online, and the threat of production restrictions for companies that exceed the flaring percentages. Starting in January 2015, when certain wells flared more gas than allowed, the NDIC began restricting production at those wells. Production at those out-of-compliance wells has been cut to either 100 or 200 BBL/d, depending on how much those wells exceeded flaring limit.
On a state-wide basis, the NDIC said flaring volumes fell to the levels mandated in Order 24665 during the fourth quarter of 2014. In January, the NDIC said gas flaring volumes were 22% of production, slightly under the statewide limit. However, several producers exceeded the flaring limits, and have been ordered to reduce production:
- In January, Emerald Oil Incorporated had production restrictions imposed on seven wells
- In February, Emerald, Whiting Petroleum Corporation (NYSE:WLL) (Denver, Colorado) and Enerplus Corporation (NYSE:ERF) (Calgary, Alberta) had production restrictions imposed
- In March, Emerald had production restrictions imposed on six wells
- In April, Emerald, Enerplus, QEP Resources Incorporated (NYSE:QEP) (Denver, Colorado), Samson Oil & Gas Limited (NYSE:SSN) (Perth, Australia), Abraxas Petroleum Corporation (NASDAQ:AXAS) (San Antonio, Texas) and Occidental Petroleum Corporation (NYSE:OXY) (Houston, Texas) all had production restrictions imposed, though Occidental's subsequently were lifted.
"Oil price is by far the biggest driver behind the slow-down, with operators reporting postponed completion work to avoid high initial oil production at very low prices and to achieve NDIC gas capture goals," Helms said in his March 12 report.
"We have over 800 wells that are awaiting completion," Ritter added. "A lot of producers are opting to self-restrict their crude-oil production if there is inadequate gas gathering or processing capacity." She said the commission recognized the chicken-and-egg situation facing some producers: "This is associated gas, and pipeline companies won't build infrastructure for associated gas before a well is flowing."
Some producers were opting for onsite storage of the gas. But many others are opting to postpone well completions until crude-oil prices come back, gas infrastructure is completed, or both.
"This regulation is having the desired effect of reducing the amount of natural gas flared in North Dakota," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "From an environmental perspective, the state is taking a huge step forward. An unintended consequence of the rule is that it also removes some crude oil from an over-supplied market, which will make a small contribution to balancing supply and demand. The rule also may create a 'catch-up' period for producers and infrastructure companies to better match production capacity with gathering capacity--never an easy thing when the market is as dynamic as it has been in the Bakken."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
