North Dakota aims to double pipeline capacity; Enterprise helps
BISMARCK - North Dakota intends to nearly double its oil and gas pipeline capacity within two years as part of a plan to curb the wasteful flaring of natural gas in the bustling Bakken oil field, the state's governor said on Tuesday.
Oil production in North Dakota has more than tripled in the past decade to 1 million barrels of oil equivalent (boepd) per day, making for the fastest-growing U.S. state economy.
But state pipeline capacity has lagged. Governor Jack Dalrymple said the state wants to boost capacity to 1.4 million boepd by 2016 from about 780,000 boepd now.
"We will reduce flaring," the Republican governor told executives, regulators and investors at a pipeline summit he hosted in the state's capital. "It's just that simple."
Producers in the Bakken, one of the top U.S. oil patches, must burn gas from wells beyond the reach of collection systems, instead of sending it to cities to heat homes. The dearth of pipelines also means that most Bakken crude moves by rail to refineries, which is more costly and can be more dangerous.
Dalrymple's overtures resonated with Enterprise Products Partners LP, which said it plans to build a 1,200-mile (1,900-kilometer) pipeline from North Dakota's Bakken oil fields to Cushing, Oklahoma. It would be the first of its kind.
Other pipeline companies have balked at building in the Bakken. Many refiners prefer using rails to tap a variety of cheap inland crudes, giving them more flexibility than pipelines, which lock refiners into long terms.
Dalrymple, who described himself as the pipeline industry's cheerleader, promised regulations and other measures to promote more pipeline development, helping decrease reliance on trucking and railroads.
"Although rail has played a critical role to market our petroleum, over the long term we're looking for the safest way to market our product," he said.
A series of fiery train crashes have raised concerns about the volatility of Bakken crude. Some companies have looked at deploying small processing towers known as stabilizers to remove flammable natural gas liquids (NGLs) from Bakken crude before it is loaded onto rail cars.
But Dalrymple said there were not enough facilities in place in North Dakota to make that a viable option.
Dalrymple and regulators changed policy on June 1 to require companies asking for drilling permits to show how they will capture natural gas released by new wells.
Updated policies for existing wells are set to be released on July 1.
The aim is to encourage pipeline construction and curb flaring, which hit 30 percent of natural gas in April 2014, the latest month reported. That was only a slight improvement from the record 36 percent in September 2011.
Oneok and other pipeline operators have been working to build natural gas networks in the state, though they have been constrained by cold weather and right-of-way issues.
Pipeline companies have grown frustrated as some landowners refuse requests to build through their land. State regulators are trying to craft rules to make construction easier, though using eminent domain is unpopular in the conservative state.
North Dakota allows wells to flare natural gas for only one year after they begin producing. Operators who break the rule can be fined production taxes on the value of the gas flared and royalty payments to the landowner.
Companies can petition for an exemption to the rule. Exxon Mobil and Occidental Petroleum filed the most exemption requests this month, though appeals have been falling and may decline even more on the new capture policies.
While environmental groups worry about flaring, many residents see traffic as a reason to build pipe, said Gene Veeder, head of McKenzie County's economic development office.
"Our local citizens are less worried about global warming then they are about the 1,100 trucks that go by their mailbox every day," Veeder said.