BISMARCK - North Dakota oil regulators said Thursday they want more input before approving new standards for removing volatile gases from crude oil before it's shipped by rail, a proposal an industry representative warned could devalue Bakken crude and contribute to more flaring at well sites.
Department of Mineral Resources Director Lynn Helms presented the state Industrial Commission with the proposed standards, part of a national effort to improve oil-by-rail safety in the wake of several explosive oil train derailments.
Helms said the standards would result in Bakken crude "behaving even better than the unleaded gasoline that you put in your cars."
Attorney General Wayne Stenehjem, who serves on the commission with Gov. Jack Dalrymple and Agriculture Commissioner Doug Goehring, said the department is "on the right track" with the proposed order. But he wanted more time to sort through it and allow for public comment.
Dalrymple agreed, called it "an excellent working draft" and a "very robust system of verification" for making sure Bakken crude falls within vapor pressure standards before it's loaded onto the rails.
The commission said it would accept comment on the proposed order until 5 p.m. Wednesday and hold a special meeting by Dec. 11 to consider approving it so the standards can take effect Feb. 1.
Helms said the proposed order strengthens the existing rule by requiring well sites to use a gas-liquid separator and/or a heater-treater to remove so-called "light ends" like butane and propane from crude oil, and mandating the equipment be operated at certain temperatures and pressures.
He estimated 80 percent of existing wells in the Bakken and Three Forks formations would be able to produce oil within the proposed vapor pressure limit of 13.7 pounds per square inch.
National standards recognize oil with a vapor pressure of 14.7 psi or less to be stable, and winter blend gasoline has a vapor pressure of 13.5 psi, he said.
Helms said the average vapor pressure of Bakken crude across several recent studies was 11.8 psi, though "there were significant outliers."
"We really believe that the vast majority of our Bakken crude oil will already fall well below the standard," he said.
The roughly 15 percent of wells that operate outside of the temperature and pressure standards would have to hire a third party to test their crude for vapor pressure and submit the results to the state within 15 days. Operators looking to use alternative methods for conditioning or stabilizing their crude would need commission approval after a hearing process.
The proposed order also would ban the practice of blending crude oil with light ends or liquids recovered from gas pipelines before the oil is sold. Dalrymple noted violators can face fines as high as $12,500 per day.
"I think we want to be sure that that's clear for everybody," he said.
North Dakota Petroleum Council president Ron Ness cautioned that the standards could devalue Bakken crude by requiring it to be over-treated, at the same time contributing to natural gas flaring by removing more gas at the wellsite.
"I think we have some pretty significant concerns," he said, adding the Industrial Commission is "getting into the nitty-gritty details of how companies manage their commodities."
Helms said preliminary figures show 24 percent of the gas produced at North Dakota wells in September was burned off. Flaring reduction standards approved by the commission in July will lower the allowed flaring rate to 23 percent on Jan. 1, 15 percent by 2016 and 10 percent by Oct. 1, 2020.
The proposed oil conditioning standards will make it more challenging for producers to meet those flaring goals, Helms said.
"We're pushing at both ends of the system, so we're making life really difficult for these people right now. But it's got to be safety first," he said.
A Wall Street Journal article on Wednesday questioned the accuracy of the testing method used in a Petroleum Council-funded study of Bakken crude's volatility, and Stenehjem asked Thursday whether the Industrial Commission should conduct its own study.
"It has been questioned, simply because it was the industry that conducted it," he said.
Helms urged the commission to support an ongoing U.S. Department of Energy study that could involve the Energy & Environmental Research Center in Grand Forks.
Ness said it's concerning that "the focus is all back on the commodity."
"The root of the issue is the trains and the train tracks and the accidents," he said.