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 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.
In Texas, where stabilizer are widely used, companies can build
short pipelines to the Gulf Coast and export NGLs.
CAPTURE RULES
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.
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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.
Linda Daughtery, of the U.S. Department of Transportation's pipeline
agency, told companies: "You should work it out with the landowner
long before it gets to the federal level."
EXEMPTIONS
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.
(Editing by Terry Wade and David Gregorio)
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