Flaring squanders natural gas as North Dakota lacks pipelines

DENVER – Towering flames atop oil wells break the inky darkness in the badlands on North Dakota's Fort Berthold Indian Reservation. The flares of natural gas set grass fires on the prairie where Theodora Bird Bear's ancestors hunted buffalo and create a driving hazard on rural roads.

"At nighttime, clouds of gravel dust from semis are lit up with flaring lights," said Bird Bear, 62, who can see flames shooting from a well behind land where she grows red beans, corn and squash. "It's a hellish scene."

Twice as much natural gas is wasted through flaring than in 2012 amid an energy boom that's propelled North Dakota's torrid economic growth. The state's employment expansion has been the fastest in the U.S. for four years. In the rush to exploit the Bakken shale formation, which holds the nation's second-largest oil supply, companies from Statoil ASA to Whiting Petroleum are stepping in to try to capture more of what's being lost.

Natural gas that's burned in flaring is a byproduct of crude oil. Without enough pipelines to transport the gas, or the refinery capacity to process it, about a third of what's released each day, worth $1.4 million, goes up in smoke. Tribal members say as much as 70 percent of gas from wells on the reservation is flared.

"We're confessing that we are flaring a tremendous amount of gas right now," Gov. Jack Dalrymple said at a February conference in Washington. "Everybody feels it's a huge waste, to say nothing of the environmental impact."

The energy business has been fueling an economic bonanza in North Dakota, with jobs growth of 3.7 percent last year.

As a polar vortex weather pattern caused a nationwide propane shortage this winter, energy companies in the Bakken flared gas rich in propane. More gas is flared in the state than in any other domestic oil field and at a level equal to Russia and twice that in Nigeria.

Flaring will escalate as oil producers approach the milestone of 1 million barrels a day from the Bakken formation, a 360-million-year-old shale bed two miles underground. About 10,100 wells produced 29 million barrels of oil in January, according to the North Dakota Industrial Commission.

Drillers flared 340 million cubic feet, or 30 percent, of the 1 billion cubic feet of natural gas produced per day in January, said Marcus Stewart, an analyst at Denver-based Bentek Energy. The lost revenue adds up to $1.4 million each day, he added.

Energy executives say economic realities force them to start producing oil from wells before infrastructure is in place to haul away less-valuable natural gas. A barrel of Bakken oil fetched $98.14 on last Friday, while natural gas for May delivery fell to $4.439 per million British thermal units on the New York Mercantile Exchange the same day.

"We absolutely don't want to flare the gas, that's lost revenue," said Russell Rankin, a regional manager for Norway-based Statoil, at a well site near the confluence of the Yellowstone and Missouri rivers.

"But if we drill a $10 million well, we've got lots of investors and they can't wait to get that revenue back," said Rankin, as a gas flare rose over land where the Lewis and Clark expedition forged a new path through the American West.

As they lose out on royalties and profits from natural-gas sales, frustrated mineral owners and investors are pressuring companies and regulators to crack down on flaring.

"We're concerned that the industry doesn't look like it's able to operate cleanly, and that invites heavy-handed regulation and turns the public against you," said Andrew Logan, director of the oil and gas program at Ceres, an organization of environmentalists and investors based in Boston. "In North Dakota, regulations simply make it too easy to flare."