You can see them from outer space. The flames from natural gas flares in the Williston Basin of North Dakota now throw off a nighttime glow larger than Minneapolis and almost as big as Chicago. All that energy is going up in smoke.
Ceres, a Boston nonprofit organization, issued a report last week illustrating that the huge surge in oil production in the Bakken Shale has outrun the drilling industry’s ability to cope with the natural gas byproduct. “Almost 30% of North Dakota gas is currently being burned off,” the report said.
The report also states, “Absolute volumes of flared gas have more than doubled between May 2011 and May 2013. In 2012 alone, flaring resulted in the loss of approximately $1 billion in fuel and the greenhouse gas emissions equivalent of adding one millions cars to the road.”
The loss rate has actually been reduced from 36% in 2011, but production has tripled in that time, meaning that an additional 266 billion cubic feet (BCF) a day is going up in smoke.
Moreover, according to the report, North Dakota gas contains other valuable products. “The natural gas from the Bakken formation contains high volumes of valuable natural gas liquids (NGLs), such as propane and natural gasoline, in addition to dry gas consisting mostly of methane. It is potential worth roughly four times that of the dry gas produced elsewhere in the United States.”
“There’s a lot of shareholder value going up in flames,” Ryan Salomon, author of the report, told Reuters.
So why can’t more be done to recover it? Well, unfortunately, according to the North Dakota Industrial Commission, the spread between the value of gas and oil, which has stayed pretty close historically, has now increased to 30 times in favor of oil in the Bakken. Even nudging up gas prices to $4 per thousand cubic feet (MCF) in recent months hasn’t made much difference. Consequently, it isn’t worthwhile trying to collect gas across widely dispersed oil fields.
Encouraging this waste is a North Dakota statute that exempts flared gas from paying any severance taxes and royalties during the first year of production. Since most fracking wells have a short lifespan, gushing forth up to 60% of their output in the first year, this makes it much easier to write off the losses.
Nonetheless, all this adds up to a colossal waste. As of the end of 2011, the amount of gas being flared each year in North Dakota was the equivalent of 25% of annual consumption in the United States and 30% Europe’s. The high burn off has moved the country up to fifth place in the world for flaring, only behind Russia, Nigeria, Iran and Iraq, and ahead of Algeria, Saudi Arabia and Venezuela. Although the World Bank says worldwide flaring has dropped by 20% since 2005, North Dakota is now pushing in the opposite direction. Altogether, 5% of the world’s gas is wasted in this way.
Efforts are being made to improve the situation: with big hitters are doing their part. Whiting Petroleum Corporation says its goal is zero emissions. Hess Corporation, which has a network of pipelines, is spending $325 million to double the capacity at its Tioga processing plant, due to open next year. Continental, the largest operator in the Bakken, says it has reduced flaring to 11% and plans to reduce it further. “Everybody makes money when the product is sold, not flared,” Jeff Hunt, vice chairman for strategic growth at Continental, told Reuters.
But it’s all those little independent companies and wildcatters that are the problem. Storage is impossible and investing in pipeline construction just too expensive. Entrepreneurs are doing their part. Mark Wald, a North Dakota native who had left for the West Coast, has returned to start Blaise Energy Inc., a company that is putting up small gas generators next to oil wells and putting the electricity on the grid. “You see the big flare up there and you say, `Something’s got to be done here,’” he told the Prairie Business.
But the long-term solution is finding new uses for natural gas and firming up the price so that its collection is worthwhile. What about our transport sector? We still import $290 billion worth of oil a year at a time when as much as half of that could be replaced with domestic gas resources. Liquid natural gas, compressed natural gas, conversion to methanol, conversion to ethanol – there are many different ways this could be promoted right now. Ford has just introduced an F-150 truck with a CNG tank and an engine that can run on either gas or gasoline. With natural gas selling at the equivalent of $2.11 a gallon (and even cheaper in some parts of the country), the new model can pay off the additional $9,000 price tag in two to three years. There are now an estimated 12,000 natural gas vehicles on the road and the number is growing rapidly. “This is an emerging technology in a mature industry,” Ford sustainability manager Jon Coleman told USA Today.
But an even better way to harvest this energy might be to design small, transportable methanol converters that could be attached to individual gas wells. Methane can be converted to methanol, the simplest alcohol, by oxidizing it with water at very high temperatures. There are 18 large methanol plants in the United States producing 2.6 billion gallons a year, most of it consumed by industry. But methanol could also substitute for gasoline in cars at lower cost with only a few adjustments to existing engines. The Indianapolis 500 racers have run on methanol for more than 40 years.
The opportunities in the Bakken are tremendous – and the need to end the waste urgent. The U.S. Energy Information Administration estimates that production in the Bakken is due to rise 40%, from 640,000 to 900,000 barrels per day by 2020. North Dakota has already passed Alaska as the second-biggest oil producing state and now stands behind only Texas, where pipeline infrastructure is already built out and less than 1% of gas is flared.
The increased production, matched with the expanding technology for using gas in cars, presents an enormous opportunity.