North Dakota Flaring Crackdown Could Slow Production

North Dakota is cracking down on flaring, the wasteful burning of natural gas, with strict rules that may stymie development in areas far from pipelines in a state that is one of the fastest-growing U.S. oil fields.

The new rules also will effectively reinforce the competitive advantage enjoyed by producers that have already taken steps to curb flaring.

The state's Industrial Commission, a three-member regulator chaired by Governor Jack Dalrymple, changed its policy on June 1 to require energy companies to submit a plan to capture any natural gas that could be released by a new well when filing for permits.

Without a plan, applications for new wells will not be approved, state officials said.

In addition, new rules for existing wells are slated to be announced July 1. The goal is to reduce the amount of gas flared, an economic and environmental consequence of the shale boom, to 10 percent by 2020 from about 30 percent currently.

"As they're planning out growth strategies, (corporate) boards are going to have to think about gas capture more and more," said Ron Ness, head of the North Dakota Petroleum Council, a trade group.

North Dakota, the No. 2 producer of oil after Texas, is responsible for a third of all the flared gas in the United States, according to the Energy Information Agency.

The natural gas that is produced along with crude oil needs to be flared if there is no pipeline to take it to market.

While the North Dakota has some natural gas processing infrastructure, about $2 billion in investment is needed to build enough pipelines to avert flaring and keep up with the pace of oil production, according to an industry task force.

For example, Divide County in the northwest corner of the state has limited pipeline access and Mckenzie County, farther south, has plenty of pipes but they are too small to accommodate the area's production, said Justin Kringstad, director of the North Dakota Pipeline Authority.

Continental Resources Inc, Marathon Oil Corp and Hess are already working to cut flaring, recognizing that they are burning a product that could be sold.

Lee Tillman, Marathon's chief executive, said at a recent conference that while his company already has specific gas capture plans, conforming to the new regulations "will take a lot of work and a lot of investment."

"It won't be easy," he said.

Hess opened an expansion of its processing plant in Tioga earlier this year, saying it helped reduce flaring. Oneok and privately held Hiland Partners are building more plants as well.

If pipelines are not available, oil companies can look to turn natural gas into fuel for use near wells with natural-gas-fueled generators or liquefaction equipment.

New rules could boost demand for products from Chart Industries Inc, which makes small liquefaction equipment, and Capstone Turbine Corp, a maker of small power plants, said Pavel Molchanov, analyst at Raymond James.

"The regulations are stimulating demand for this," Molchanov said.

By Anna Driver and Ernest Scheyder