A new study shows it may be economically viable for North Dakota oil companies to temporarily store natural gas underground as an alternative to flaring.
The study by the Energy and Environmental Research Center at the University of North Dakota found that injecting natural gas into an underground rock formation and withdrawing it later could allow companies to produce more oil and meet the state’s gas capture goals.
The North Dakota Industrial Commission requested the study as it searches for solutions to reduce natural gas flaring while companies catch up on building natural gas processing plants, pipelines and other infrastructure.
“The economics aren’t great, but it is economic under the right circumstances,” Lynn Helms, director of the Department of Mineral Resources, told a legislative committee last week.
But there are regulatory, tax and royalty questions that need to be clarified before companies would likely consider implementing gas storage, Helms said. It could lead to legislation being discussed this session that would raise legal questions affecting landowners and mineral interest owners.
North Dakota continues to set records with natural gas production, most recently reporting 2.56 billion cubic feet per day.
In October, operators burned off 20 percent of the natural gas produced, or 527 million cubic feet per day, due to inadequate infrastructure to capture the gas. Industry has been struggling to meet the Industrial Commission's gas capture target, which as of November requires companies to limit flaring to 12 percent.
John Harju, vice president for strategic partnerships at the EERC, said the best option will always be to capture the natural gas and transport it by pipeline to a natural gas processing plant.
But when that’s not an option due to inadequate infrastructure, temporarily storing the gas is one way companies could continue increasing oil production without increasing flaring, the research found.
“It’s another tool for the toolbox,” Harju said.
The study estimates that oil companies voluntarily curtailed oil production by 50,000 barrels to 80,000 barrels of oil per day in November in order to reduce natural gas flaring.
The research examined the potential of injecting produced gas, or gas that has not been processed, into the Broom Creek Formation, a porous rock layer about 7,400 feet underground in portions of the Bakken. The study, based on simulations, looked at withdrawing that gas up to five years later.
Beth Kurz, one of the authors of the study, said it’s expensive to inject natural gas underground because of the costs to compress the gas.
But the value of the oil that is not being produced in order to reduce flaring is estimated at $3 million to $4.7 million per day, assuming an oil price of $59 per barrel.
“It’s so high that it really opens up a lot of opportunities for alternative scenarios to do something with the gas,” said Kurz, assistant director for integrated analytical solutions for the EERC.
The study showed that not all of the gas injected underground would be recovered. Recovery rates in the simulations ranged from 25 percent to 74 percent after five years of gas recovery.
Results were more favorable for gas injection sites that are reused.
Withdrawing the stored natural gas also would lead to additional recovery of wastewater that would need to be disposed of in a saltwater disposal well, the study said.
The study also examined other underground zones that could be used for gas injection, including conventional oil fields.
The study raises questions about whether North Dakota regulations need to be clarified to allow for temporary storage of natural gas. A key issue is whether landowners should be compensated for the temporary use of pore space, or the cavity or void underground where the gas would be injected and temporarily stored.
Ownership of the pore space belongs to the surface owner, not the mineral owner.
Helms told the House Energy and Natural Resources Committee that he thinks there will be legislation introduced this session related to pore space. No bills addressing the issue had been made public as of Friday afternoon.
Derrick Braaten, a Bismarck attorney who often represents landowners, said he would have significant concerns about legislation on pore space.
“When you’re talking about injecting the natural gas, my take on it would be that there’s going to need to be some kind of a payment to the surface owner for the use of that pore space,” Braaten said.
It will be important to sort through the gray area in the regulations before industry will want to pursue a project, according to Helms, who said storing gas underground is already “marginally economic.”
"The issue of the pore space use and the pore space compensation may tip these economics the other way," Helms told the committee.
Other issues that could arise are the timing of royalty and tax payments for gas that is injected and later recovered, as well as the ownership of gas that is not recovered from the subsurface formation.
“I don’t think from a policy standpoint it’s a bad idea to do the reinjection. It’s an interesting idea,” Braaten said. “From a legal standpoint, I think there are some definitely complicating factors they're going to have to deal with or there’s going to be lawsuits.”
Harju said the mineral owners would benefit from the royalties on the additional oil that would be produced.
The North Dakota Industrial Commission approved $140,000 for the study from the state’s Oil and Gas Research Program. It’s expected to be discussed at the commission’s meeting on Friday at the Capitol.