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It is well known that advances in technology have enabled the US to experience a huge boom in oil production over the past several years. Since 2007, oil production from North Dakota's Bakken formation has increased by 4,000%, and turning the state into the second largest oil producer after Texas. The problem is that a natural by-product of oil extraction is natural gas, and due to the lack of infrastructure to store, transport, and compress the gas, nearly 30% has to be burned at the well in a process known as flaring.
Think Progress reports that an estimated $100 million worth of natural gas is flared in North Dakota every month, depriving the US economy of a huge source of revenue, and also releasing vast amounts of carbon emissions into the atmosphere.
On Wednesday, the North Dakota Petroleum Council, comprised of hundreds of companies, promised to try and resolve this problem and reduce the amount of gas being flared.
"The industry can increase natural gas capture to 85 percent within two years, 90 percent capture in six years, and could capture up to 95 percent of gas."
The New York Times wrote that "roughly six million tons of carbon dioxide into the atmosphere every year, roughly equivalent to three medium-sized coal plants," and "experts expect a 40 percent increase in the gas produced from the Bakken field by the end of 2015."
Such large volumes of gas are flared because the infrastructure doesn't exist to make use of it, and it hasn't been developed due to the fact that gas is worth so little. The North Dakota Industrial Commission estimated that the crude oil to natural gas price ratio was 30 to 1 for 2013.
Ron Ness, the President of the North Dakota Petroleum Council, stated, "where would your emphasis be? If you've got a barrel of oil that's worth $95 and you've got [1,000 cubic feet] of gas ... that's worth $4.25, which infrastructure would you build first?"
In July 2013, CERES released a report in which it explained that "natural gas requires its own infrastructure to be collected and marketed, necessitating further investment. In the absence of a strong regulatory framework that prohibits flaring, companies working with a limited amount of capital (which is to say all companies) have a strong incentive to put their capital toward oil production, given its higher return relative to natural gas."
Oil companies generally don't have the money to develop huge levels of infrastructure to carry the natural gas off to market, so another alternative would be to slow down the rate of production, reducing the volume of natural gas extracted.
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Written by James Burgess at Oilprice.com.