Betting on Bakken Innovation

Betting on Bakken Innovation

Associated natural gas continues to be an issue for producers in North Dakota. While the Bakken’s rich natural gas is a valuable commodity, even at current prices, the geography and logistics in western North Dakota make gas capture and processing complicated and expensive. Direct costs related to natural gas capture are one thing, but recent estimates are that 50,000 to 80,000 barrels per day is being voluntarily held back as operators work to meet the state’s gas capture target. That is enough to get everyone’s attention.

North Dakota oil production for Nov. 2018 was 1,375,803 bpd, according to the North Dakota Department of Mineral Resources (DMR). The November number was 16,500 bpd below the state’s all-time high from the previous month. If the ‘hold back’ estimates are correct, daily production could have been well north of 1.4 million bpd.

In addition to voluntary production restraint, the gas capture issue affects the ability of producers to efficiently carry out their in-fill development plans. Given the location of the Bakken, operators face infrastructure challenges and higher transportation costs to deliver their oil and natural gas to markets, affecting the net-back on their production. Additional constraints from associated natural gas is another, unwanted, factor impacting capital investment decisions.

The associated natural gas issue in the Bakken has everyone’s attention. Currently, operators, the mid-stream sector and state regulators are working together to identify and implement solutions. Stakeholders in the Bakken, and other domestic tight-oil plays, have a strong track record of innovation and research to increase recovery rates for oil and reduce costs. The natural gas issue in North Dakota will require a similar effort.

The million-dollar question (inflation adjusted) in the Bakken is — what to do with all this gas?

During the initial rush to hold leases by production the amount of natural gas flared in the Bakken hit 36 percent in Sept. 2011 and again in Dec. 2013. Significant investment in natural gas pipelines and gas processing plants over the ensuing seven years has significantly increased the amount of natural gas captured and processed. In an effort to increase the rate of gas capture, the North Dakota Industrial Commission established graduated gas capture goals, the current goal is 88 percent (Nov. 2018 through Oct. 2020). In the last half of 2018, the percentage of gas captured started to drop to the point that in November the statewide gas capture percentage was 79 percent, well below the current capture target.

According to a presentation from the North Dakota Pipeline Authority, of the roughly 20 percent of produced gas that is currently being flared, 4 percent is due to lack of pipelines and 16 percent is due to challenges in existing infrastructure.

The buildup of natural gas processing facilities over the past seven years currently provides the capacity to process roughly 2,200 mmcfd. Planned plant expansion and new facilities are expected to come on-line in the next three years to increase processing capacity to over 3,300 mmcfd. But, based on projections from the DMR, associated natural gas production will exceed that increased capacity soon after the new and expanded facilities are up and running.

In fact, the DMR projects that daily production of natural gas in the Bakken will double over the next 15 to 20 years.

Time to Get Creative

One intriguing option being studied by the North Dakota Industrial Commission is the underground storage of produced natural gas. The Energy & Environmental Research Center (EERC) in Grand Forks, North Dakota has completed an initial study on the feasibility of produced gas injection and storage into various geological formations. A primary goal of this study is to provide a workable solution to the handling of produced gas so that operators will no longer be constrained by the increased gas capture target and the gas will be available to benefit future gathering and processing capacity.

While this is a new concept in North Dakota, the initial findings are positive. DMR Director Lynn Helms stated, “This innovative concept is the first idea in a long time that could seriously move the needle on associated gas flaring.”

Based on the study, the estimated benefit of the underground storage of produced natural gas could be as high as $200 million on a single multi-well pad with the flaring constraint on production and well development removed.

In addition, the use of potential gas storage target zones in the Williston Basin may provide Enhanced Oil Recovery (EOR) benefits. This will require further study, but the initial work done by the EERC identifies an exciting development. In drill spacing units where the parent well has been in production for several years and infill work is planned to fully develop the resource, the injection and storage of produced gas into the parent well may provide “multifaceted benefits,” according to the study.

The EERC was well suited for this study because it has been looking at the feasibility of injecting CO2 from North Dakota’s coal-fired power plants into oil-producing formations in the Williston Basin for EOR and into other geologic formations for storage. The geological data and modeling from that effort helped in the study of underground storage of produced natural gas.

While the underground storage of produced gas may just work from a technological angle, there are some important issues that require further consideration. Lease and contract terms will need to be addressed as the recovery rate of stored gas is tested. Of course, any recovery of stored natural gas is a positive when compared to flaring, but how the economics are distributed between producers, mineral owners and the mid-stream sector will need to be worked out. Given the economics, most expect these remaining issues to be resolved.

Stakeholders in the Bakken are taking an “all-of-the-above” approach to solve the flaring challenge. The work done to evaluate the underground storage of produced gas demonstrates the creativity that has been around since the start of the shale revolution. Based on past successes, a solution to the Bakken’s gas problem seems a sure bet.

 

About the author: Bette Grande is a Research Fellow for energy and environment issues at The Heartland Institute. She served as a North Dakota state Representative from 1996–2014. Grande was a member of the House Appropriations Committee, Education and Environment Division. She was born and raised in Williston, North Dakota.

Photo credit:

Steve Oehlenschlager/bigstock.com

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