Monday, December 2, 2013

Critical Point for U.S. Gas Flaring

A sign of unconventional oil boom in the U.S. can now be seen from satellite photographs of flared gas from oil wells. NASA’s pictures from the space show brightly lit areas of sparsely populated Northwest North Dakota amidst the darkness of the Great Plains. Flaring of associated gas from oil wells in North Dakota jumped up to over 50 percent since 2011, according to a non-profit organization Ceres dedicated to improved corporate sustainability. Associated gas is a form of natural gas that is found during petroleum extraction and it can be captured and processed for electricity generation or reinjected to oilfields for enhanced oil production. Hesitance of the oil industry to invest in expensive infrastructure to capture the associated gas, in view of record low natural gas prices, has catapulted the U.S. to the ranks of 5th worldwide for the highest volume of gas flared, nearing the levels of Russia and Nigeria. 

Although flaring is less environmentally damaging than venting natural gas into the atmosphere, it is a pollutant that emits large amounts of carbon dioxide. The Bakken oil formation in North Dakota has turned this Upper Midwestern state into #2 producer of oil in the U.S. after Texas. North Dakota is also the largest contributor of flared gas. According to some estimates, the value of burnt off gas in North Dakota is close to $100 million a month. With tripling of flared gas over the last two years, companies operating in North Dakota are under pressure to reduce flaring or pay royalties and taxes in compliance with the state regulations. The state’s regulations allow oil producers gas flaring for one year without paying taxes or royalties on it, with a possibility of extending this provision on the grounds of economic difficulties of linking wells to a natural gas pipeline. After this period, “producers can continue flaring but are responsible for the same taxes and royalties they would have paid if the natural gas went to market.” 

Gas flaring is now a political issue in North Dakota. In an unprecedented move, mineral rights owners in this state have filed 10 class-action lawsuits against oil producers this October, demanding millions in dollars in lost royalties from flared gas in fracked oilfields and hoping that such pressure would expedite flare reduction. More landowners expressed interest in joining the litigation against oil companies in North Dakota. While the process is in the early stages, it is widely believed that a successful outcome of these lawsuits may increase the cost of oil drilling and slow down this state’s booming economy. However, reduction of gas flaring does not have to end in a zero-sum game. Norway’s oil production did not stop because of strict regulations imposed on management of associated gas. Oil drilling in Norway is allowed only after solutions on handling associated gas are presented to the authorities. The U.S. oil industry has reached the point that it cannot ignore the scale of economic and environmental cost of flared gas. Given the latest legal pushback from landowners in North Dakota, the U.S. has a chance to learn from the best practices in harnessing the associated gas

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