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Incendiary Investment – Montana Energy Review

Amid grass-laden prairie and craggy Badlands, oil wells beam like giant medieval torches in the cerulean North Dakota sky. These candles of industry produce upwards of 700,000 barrels of oil each day from the shale reservoirs deep beneath the earth. Simultaneously, these North Dakota rigs are burning off an estimated 30 percent of their natural gas byproduct into the air, a technique known as “flaring.”

But why is this valuable resource seemingly going up in smoke?

While pumping a well, producers encounter oil and natural gas. Oil can be collected, transported by truck or train and sent to market. Gas, on the other hand, poses a logistical problem in that it needs to be ushered through a pipeline to a processing plant, or separated with a portion of the gas extracted as a natural gas liquid (NGL) then transported.

Because it is difficult and sometimes, impossible, to transport natural gas from satellite wells, excess gas is often flared, raising questions about wasted resources and environmental impact. Price matters, too—when natural gas prices are low, as they currently are, the cost of infrastructure needed to gather and transport gas can outweigh potential revenue gains and tip the balance in favor of flaring.

North Dakota has approximately 4,300 wells connected to a pipeline, leaving around 1,100 waiting to be hooked up, according to Justin Kringstad, director of the North Dakota Pipeline Authority. As producers attempt to narrow that gap, North Dakota law allows for companies to flare gas for one year after production starts.

In Montana, producers are afforded a 60-day testing period on the well with no limits on the amount of venting or flaring, according to Tom Richmond, administrator of the Montana Board of Oil and Gas Conservation.

“After those 60 days, the producer is only allowed to flare 100 MCF or less,” Richmond said, unless an exception is granted by Board.

Because most of Montana’s wells are currently attached to a transport pipeline, flaring isn’t as much an issue as it is in North Dakota.

The air up there

With all the chatter about the affordability of processed natural gas, it’s easy to erroneously assume that the natural gas escaping pipe stacks in the Bakken is of the “expendable” variety.

“With the heritage we have in North Dakota, the concept of waste is hard to swallow,” Kringstad said. “We see great value in capturing flared gas and are increasing infrastructure needed to move it to market.”

In February, natural gas delivered to Northern Border at Watford City was down to $2.83/million cubic feet (MCF), resulting in a current oil to gas price ratio of 31 to 1, according to the North Dakota Industrial Commission’s Department of Mineral Resources.

Yet, Bakken/Three Forks natural gas content is ripe with something that has producers and processors fixed and fascinated.

“Natural gas produced from the Bakken/Three Forks area is very rich in natural gas liquids (NGLs),” said Kringstad. “These NGLs (ethane, propane, butane and natural gasoline) are very valuable and add additional economic incentive for the industry to capture the wellhead natural gas as soon as possible.”

So, if the value of the flared gas has been evaluated and second party vendors are interested in capturing and transporting it, what’s the hold up?

The problem is one of infrastructure and scope.

With the Bakken covering nearly 18,000 square miles and upwards of 1,000 wells waiting to be hooked up to pipeline, there is nowhere for the gas to go but up.

That’s where Brian Cebull and his team at G2G Solutions come in.

Waste to revenue

Cebull and his business partners saw an opportunity to spearhead an innovative business designed to capture and transport NGLs from well sites without the use of a pipeline.

G2G Solutions—Gas to green (as in “environmentally green ” )— was born.

Cebull, who owns Nance Resources in Billings, is a petroleum engineer. His G2G partner, Mark Peterson, owns Aspen Consulting and Engineering in Helena and is a chemical engineer. A third partner, James Haider, owns Chinook Engineers and Associates in Helena and is a mechanical engineer.

“The three of us put our heads together, and it was a synergy of specialties,” Cebull said of the G2G brainchild.

This was back in August 2011. By May of 2012, G2G had equipment in the field to collect and transport NGLs.

The treatment units themselves essentially look like a trailer and can be hauled from well site to well site, capturing, liquefying and storing NGLs. G2G does not own or sell the collected material. Rather, G2G technicians act as courier—extracting liquids to be processed. Lease and mineral rights owners maintain sole ownership of the recovered NGLs.

“We took the basic natural gas processing system and made it moveable and scalable,” Cebull said.

Because wells, especially multi-well pads, can become quite congested, Cebull said a definite plus of G2G is that it has a small footprint and provides its own operators.

“Because we’re compact and mobile, we can position ourselves in the safest most convenient spot on the site,” Cebull said. “And because we provide our own trained staff, our customers don’t have to do a thing.”

Cebull credits the expertise and skill of his field supervisors and technicians with much of G2G’s success. He is also proud that the company has Montana roots and looks forward to expanding business beyond the Big Sky.

Having “worked out the bugs” in the field, Cebull said G2G is excited to implement a new, patent-pending flow control technology that will allow the systems to accommodate both surges and ebbs in gas production rates, allowing for continuous operation.

In addition to erratic gas flow rates, “wells in the Bakken and Three Forks are known for producing high initial rates,” Cebull said.

But high initial rates also equal high rates of initial decline.

“G2G can combine multiple systems on a single well to treat high-flow rates and remove systems and capacity as the well declines.”

Collect, conserve

In addition to “essentially creating revenue from a waste stream,” Cebull sees another benefit to his business.

“Collecting flared gas helps to reduce carbon emissions and harmful VOCs (volatile organic compounds),” he said. “There is definitely an environmental benefit to what we do.”

The Montana Department of Natural Resources notes that flaring is a common practice used by the industry to control certain harmful emissions associated with oil production, but that flaring also increases emissions of nitrogen oxide, carbon monoxide and fine particulate matter. Thus, technologies that capture gas, like G2G, can provide measurable environmental benefits.

Industry leaders like Kringstad also see the value in this technology.

“G2G and others have answered the call and have seen the window of opportunity,” Kringstad said. “Additional gas plants are being built and extra pipeline will be laid to further accommodate this need.”

Between 2011 and February of 2013, more than 2,300 miles of new pipe was laid to connect wells and transport gas to market, Kringstad said. That’s roughly the distance from Seattle to Washington D.C.

“We’re dedicated to developing this,” he added.

ONEOK Partners, an Oklahoma-based petroleum firm largely involved in transporting oil and NGLs in the Bakken and around the country, also sees promise in expanding infrastructure to meet the needs of producers flaring gas.

Megan Lewis, a spokesperson for ONEOK, announced that the company plans to invest approximately $2.7 billion in natural gas and NGL growth projects in the Williston Basin through 2015. In November 2012, ONEOK canceled plans to construct a new oil pipeline in the Bakken region, iting lack of demand. Currently, the company is constructing a $500 million, 500-mile NGL pipeline that begins in Sidney, Mont., and connects to existing infrastructure in Colorado, just south of Cheyenne, Wyo.

“Our investments in this area are a positive step toward expanding the current infrastructure and reducing flaring activity,” Lewis said.

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