North Dakota regulators have adopted the most stringent rules to date aimed at reducing the amount of natural gas that is burned off and wasted as a byproduct of the state's soaring oil production.
The state Industrial Commission, which regulates North Dakota's oil and gas industry, endorsed a policy Tuesday that sets goals to reduce flaring in incremental steps through 2020. The new rules allow regulators to set production limits on oil companies if the targets are not met.
"There are going to be a couple of producers out there who will feel the pinch and are going to be scrambling," said Gov. Jack Dalrymple, who is chairman of the Industrial Commission, which also includes Attorney General Wayne Stenehjem and Agriculture Commissioner Doug Goehring as members.
Dalrymple said the new rules would be "meaningless" unless the state strictly enforced them.
"I hope what we do today, we are serious about," Dalrymple told Lynn Helms, director of the state Department of Mineral Resources, whose agency oversees oil drilling.
North Dakota drillers currently burn off, or flare, about 30 percent of the gas because development of pipelines and processing facilities to capture it hasn't kept pace with oil drilling. Less than 1 percent of natural gas is flared from oil fields nationwide, and less than 3 percent worldwide, the U.S. Energy Department said.
North Dakota, the nation's No. 2 oil producer behind Texas, is producing about 1 million barrels daily. The state also produces more than 1 million cubic feet of natural gas daily that comes when an oil well is drilled. The state is losing nearly $1 million monthly in natural gas tax revenue from flaring at present, state tax department records show.
The new flaring rules require flaring to be reduced to 26 percent by Oct. 1 and 90 percent within six years as infrastructure catches up with oil development. Companies that fail to meet the goals could have production at a well limited to as little as 100 barrels a day, depending on the amount of gas flared.
The percentage of flared natural gas in North Dakota has remained around one-third of production in recent years, though the overall volume has dramatically increased.
Wayde Schafer, a North Dakota spokesman for the Sierra Club, said in an interview that the new rules "don't go far enough and it takes too long to get there."
"It is good that the industry is recognizing this is a problem and the state is willing to do something about it," he said.
The state Industrial Commission also has required oil companies to submit a gas capturing plan with their drilling permits since June 1, in an attempt to curb flaring. The plan must include detailed information about when a well is slated for completion, its location and anticipated production. The plan also must contain a signed affidavit to show that gas-gathering companies have been consulted so that they may plan to meet the demand.
Helms said about a dozen oil companies already are meeting gas capturing targets set for October. Another 10 companies "are close" but a "handful are way out."
Helms believes there will be "peer pressure" among oil companies to ensure the targets are met.
North Dakota's flaring percentage is somewhat skewed by flaring on the Fort Berthold Reservation in the heart of the state's oil patch. Helms said the reservation accounts for about 30 percent of the oil production in the state but flaring percentages are often higher there, sometimes more than 40 percent.
The high flaring percentages on the reservation count toward the state's overall percentage, and curbing the practice there "is going to be challenging," he said.
The North Dakota Petroleum Council has said the industry has already invested more than $6 billion in infrastructure to capture natural gas in the past six years and plans to spend at least an additional $1.7 billion over the next two years building gas pipelines and other infrastructure.
Ron Ness, president of the group, said in an interview that the industry believes it can meet the flaring goals but hopes punishing companies by curtailing oil production will be used by regulators "as a last resort."