A driller works on a rig in Billings County in October. North Dakota regulators expect as many as 10 additional drilling rigs in North Dakota in 2018.

As North Dakota oil production is poised to hit a record this year, the industry has major infrastructure challenges ahead.

Reducing natural gas flaring is the most pressing obstacle as increasing volumes of natural gas production strain existing pipelines and natural gas processing capacity.

Industry leaders say construction in the Bakken is expected to increase in 2018 in response to the infrastructure needs and stronger oil prices.

“We know that infrastructure development slowed substantially over the past three years because of extremely low commodity pricing,” said Ron Ness, president of the North Dakota Petroleum Council. “You’re starting to see some investment back in the Bakken in recognition that its economics have improved so much.”

Ness added that the Dakota Access Pipeline has made transportation costs more competitive and technology advancements have improved well performance.

North Dakota produced an average of more than 1.17 million barrels per day in January, about 52,000 barrels per day shy of the record 1.2 million barrels set in December 2014.

The growth of oil production could be tempered, however, if the industry can’t keep up with capturing and processing natural gas.

The state frequently breaks records with natural gas production, with nearly 2.07 billion cubic feet per day produced in January. That month, companies flared 310 million cubic feet per day of natural gas.

To address this challenge, the Petroleum Council has reinstituted its gas capture and infrastructure development task force with more than 60 people participating, Ness said.

Several projects have recently been announced, including a natural gas liquids pipeline and expansions of natural gas processing plants.

“We anticipate we’re going to need a lot more,” Ness said.

Justin Kringstad, director of the North Dakota Pipeline Authority, projects the state will need an additional 1 billion to 1.5 billion cubic feet per day in natural gas processing capacity, beyond the projects currently in development.

A longer-term need is additional pipeline capacity to export consumer grade natural gas out of the Bakken, Kringstad said.

Gathering pipelines

From 2011 to 2015, North Dakota added at least 2,000 new pipeline miles each year for gathering oil, natural gas and produced water and transmission lines for exporting oil and gas out of the region, according to the North Dakota Pipeline Authority.

That slowed significantly in 2016, with the state adding 914 new pipeline miles. Figures for 2017 are not yet available.

In 2018, Kringstad said he expects to see a new phase of buildout of gathering pipelines to keep up with production growth. In addition, the pipeline development is needed in fringe areas of the Bakken that are now seeing more activity.

Until new gathering pipeline systems get developed, Kringstad expects there may be an increase in truck transportation.

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Transmission pipelines

The Dakota Access Pipeline, which began commercial service in June, was about 85 percent full in January, according to Kringstad’s figures.

The pipeline has a total capacity of up to 520,000 barrels per day with the ability to be expanded to transport 570,000 barrels per day. Energy Transfer Partners recently announced it is gauging interest in the industry to expand the pipeline's capacity.

As oil production is expected to increase, particularly as a result of technology advancements, industry leaders believe North Dakota will need an expansion or a new pipeline to export crude oil out of the region.

During the downturn, some pipeline and infrastructure projects had been put on hold.

“We want companies to dust those things off and start looking at them again,” Ness said.

Kringstad projects oil production will exceed pipeline capacity in the next 12 to 18 months.

“Industry then will have to look at either expanding existing systems, build new or additional utilization of crude by rail,” Kringstad said.

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(Reach Amy Dalrymple at 701-250-8267 or Amy.Dalrymple@bismarcktribune.com)