Environmental concerns about gas flaring at oil wells is driving regulation and threatening to cut production. The energy industry is responding with technology, and some companies are turning the problem into an opportunity.
This isn't a picture of a starry sky. It's a satellite photo of the earth, specifically the northwestern corner of North Dakota. And that cluster of lights isn't a city. Those are gas flares from the Bakken shale oil wells. Such images have struck a nerve in the environmentalist community.
If there's no available gas gathering infrastructure on an oil field, drillers simply burn off gas from the well in a controlled flare. According to a New York Times story, the Bakken gas flares release roughly six million tons of carbon dioxide every year, angering environmentalists.
That's why North Dakota imposed tough flaring reduction targets in March. According to a report by the Oil & Gas Journal, state regulators issued an order on July 1 that could force some operators to reduce production. The first deadline is in a few months, and regulators could cap violating wells at only 100 barrels per day.
A race to keep up
The New York Times reported that gas production in the Bakken could see a 40% increase by the end of 2015 due to all the drilling activity. Companies such as ONEOK (OKE -2.64%) and its master limited partnership, ONEOK Partners (OKS), are racing to build more gas gathering infrastructure. The report quoted Brad Borror, a spokesman for Oneok, as saying, "By the end of 2015, you'll see a significant decrease in flame volumes."
The Oil & Gas Journal reported in April that Oneok had started up Stateline II, its third new natural gas processing facility in the area. Oneok, one of the largest gas gathering operators in the Bakken, expects to increase its processing capacity from 390 million cubic feet of gas per day to 590 million cubic feet per day by the end of 2015.
New technology to the rescue
While Oneok races to build more gas gathering and processing infrastructure, others are addressing the flaring issue with new technology. Hess (HES 2.43%) is expanding its use of a new mobile natural gas liquid, or NGL, extraction system developed by Gtuit and Corval Group. According to Gtuit materials, the system can extract NGLs right at the well site, and drillers can set up the mobile systems in less than one day.
Hess also recently announced the completion of its Tioga Gas Plant expansion, which reduced flaring from about 25% to 15-20% at the company's operations. The announcement quoted Greg Hill, President and Chief Operating Officer of Exploration and Production for Hess, as saying, "As a leading operator in one of the best shale plays in the world, the Bakken will be the single biggest contributor to our production growth over the next five years." He added, "We expect that by 2018, we'll be producing 150,000 barrels of oil equivalent per day from the Bakken."
Thinking inside the box
Statoil (EQNR -0.85%) is taking another approach. The company is working with General Electric and others to reduce flaring on the Bakken fields. Referring to the gas flaring issue, the New York Times quoted Lance Langford, Statoil Vice President for Bakken Development and Production, as saying, "You take a problem and you turn it into an opportunity. We're trying to think outside the box."
That's an appropriate expression. GE's solution to the flaring problem involves capturing the gas at the wellhead and turning it into compressed natural gas, or CNG, using mobile units. GE calls the technology "CNG in a box."
The units strip out valuable natural gas liquids like butane and propane, storing them for later trucking to petrochemical plants. The system then compresses the rest of the gas into CNG, which Statoil uses to fuel some of its equipment, like drilling rigs. Statoil calculates it could eventually save around 20% of the flared gas this way, avoiding regulatory curtailment on its wells.
The Zen of Foolishness
Companies ultimately exist to solve human problems, but can often create different ones in the process. Look for companies like Oneok, Hess, and Statoil that use technology not just to solve problems, but to turn problems into opportunities for growth.