BAKKEN SHALE:

As gas continues to go up in the air, N.D. moves to tighten loose flaring rules

Each day for the past few weeks, Bob Skarphol has driven past an oil well near his North Dakota home, where a 30-foot flame shoots into the sky.

The well's operator is burning the natural gas that's produced with the oil, even though there's a gas pipeline across the road from the well site, Skarphol, a Republican state legislator from Tioga, said in an interview. It's a common sight in North Dakota's Bakken Shale oil field, where about one-third of natural gas production is being burned in flares.

"It's frustrating to see that gas being flared and pay your utility bill in the winter time," Skarphol said.

The North Dakota Oil and Gas Division is writing rules that will offer a tax incentive to reduce the amount of gas flared, although state regulators and environmental groups say flaring is likely to continue.

Currently, producers can burn the gas produced at an oil well for up to a year without paying royalties and state taxes on it. After a year, producers can request a continued exemption if it's uneconomical to connect the well to a pipeline.

The new rules would offer a separate tax incentive to operators who take steps to reduce flaring, such as using gas to generate electricity on-site or compressing it for use as a motor fuel or as a raw material in fertilizer. Producers that want to continue flaring under the existing rules would have to show that those options are uneconomical to get an exemption. A public hearing is scheduled for Oct. 1, followed by a 10-day comment period. The rules are schedule to take effect April 1, 2014.

The high price of oil has made it economical to ship crude by truck and rail in North Dakota, said Lynn Helms, executive director of the state's Department of Mineral Resources. The glut of natural gas around the country makes it harder to find a market for the state's gas.

Critics say the state's comparatively loose rules on flaring contribute to the amount of gas being burned. State Sen. Tim Mathern, a Democrat from Fargo, introduced a bill earlier this year that would have restricted flaring to one year after the start of an oil well's production. That approach was rejected in favor of offering the new tax incentives. Mathern said he doubts the new rules will reduce the amount of gas being flared.

"That's like paying people to go to church -- they should be doing it anyway," he said.

Still, flaring the gas from oil wells is less harmful than simply venting it to the atmosphere, Helms said. New pipelines to collect the gas and new plants to process the gas and strip out byproducts are coming online this year, which may also reduce the amount of flaring. Also, many of the state's biggest oil producers are beginning to drill several wells on the same site, making it easier to connect the wells to pipelines.

The state may be able to reduce flaring by more vigorously enforcing a separate set of field-level rules, Helms said.

North Dakota, the second-biggest oil producer after Texas, is under pressure from environmental groups and others who say flaring wastes natural resources and contributes to climate change. About 28 percent of the state's natural gas production was flared in June, down from a high of 36 percent in September 2011, according to the Oil and Gas Division's figures. But the volume of gas flared increased to 8 billion cubic feet from 5.7 billion cubic feet during the same time period, even though the percentage dropped, because overall production rose, according to state figures.

Nationwide, about 1 percent of natural gas is flared, according to the U.S. Department of Energy. In Texas, about 0.4 percent of gas production was flared in 2012, according to the Texas Railroad Commission.

North Dakota's producers burned $1 billion worth of natural gas in 2012, releasing the same amount of greenhouse gases as 1 million cars, according to a July report from Ceres, a nonprofit group that advocates sustainable development. The flares may also be releasing methane and volatile organic compounds, since they don't always burn efficiently, Jennifer Cassel, a staff attorney with the Chicago-based Environmental Law & Policy Center, said in an email.

"Capturing the gases is the only way to stop air pollution from flaring entirely," Cassel said.

Some of the state's oil producers have agreed to reduce flaring under pressure from shareholders. Continental Resources Inc., the biggest producer in the Bakken, said in its annual report that it cut flaring in half from 2011 to 2012, and it set a goal of reducing the practice "as close to zero percent" as possible (EnergyWire, March 1).

Skarphol, the legislator, said public pressure may force the state Industrial Commission, which oversees the Oil and Gas Division, to take more action, as residents continue to see gas being burned at sites like the one outside Tioga.

"We're bright enough to know that that would heat a lot of homes," he said.

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