Even US Needs to Improve NatGas Delivery Infrastructure (Oilgasmonitor.com)

When reviewing the potential for development of unconventional resources in other countries, we often cite lack of infrastructure as a one of the challenges that puts most countries well behind the US.

That’s true for the most part, but when you look at natural gas delivery infrastructure, even the US has a lot of work to do to fully bring product to the market regions that need it but must currently rely on other energy sources like coal for power generation.

This is a problem from both a revenue perspective as well as meeting the US Environmental Protection Agency’s (EPA) goal of cutting carbon emissions from the power sector 30 percent below 2005 levels by 2030.

While the EPA’s goal should translate to incredible gains for the natgas industry, it’s not without its obstacles.

Natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides, and 1 percent as much sulfur oxides at the power plant as coal. But it wasn’t the reduced emissions that drove many power plants to switch to natural gas in recent years; it was the low, low prices that resulted from the glut produced by high production and lack of regional infrastructure.

Yet the effect was undeniable: the switch to natgas from coal brought CO2 emissions down 18% in early 2012, the lowest for any quarter since April-June 1986. Even the US Department of Energy noted the connection between CO2 emissions falling while natgas usage was on the rise, saying “The decline in coal-related emissions is due mainly to utilities using less coal for electricity generation as they burned more low-priced natural gas.”

Disconnect Between Production and Delivery

So, it’s full-speed ahead with natgas exploration and development, right? Well, there’s that niggling little problem of getting the product from regions rich in the resource to the regions that need it. The disconnect is so severe that almost 40 percent of the natural gas recovered in the US is currently flared off. North Dakota’s nearly $1.2 billion in wasted natural gas even prompted a lawsuit for lost royalties against 10 oil and gas companies operating there.

North Dakota’s Bakken, according to the Energy Information Administration (EIA), is responsible for 22 percent of all the natural gas flared in oil and gas operations throughout the US, amounting to about $3.6 million per day going up in smoke.

Wyoming and Montana have similar issues.

Time for Solutions is Now

It’s a frustrating waste of a clean-burning resource that is not going unnoticed. Congress is even trying to help open the doors to more and faster development of pipeline projects: the House of Representatives approved the Natural Gas Pipeline Permitting Reform Act late last year, requiring the Federal Regulatory Commission to approve or deny natural gas pipeline projects within a year of application. Chances of passage don’t look very promising—President Barack Obama has promised to veto the bill and GovTrack.us gives it only a 14 percent chance of being enacted—but the need for more delivery infrastructure is clear.

While the natural gas being flared off is often a byproduct of much more profitable oil production, it’s still lost revenue and yet another black eye for an industry that just can’t seem to get out of its own way when it comes to losing the public relations battle. Continental Resources, Inc., is one company that’s trying to come up with a solution: the company discloses its long-term drilling plans to pipeline companies far in advance of beginning operations so that the pipeline infrastructure is already in place. It’s a bold move in an industry that has long held the details of operations close to the vest, but it’s paying off for Continental: the company reports that it has succeeded in whittling down its flare off to about 10 percent, saving the company more than $2 million per quarter. Average flare off for Bakken operators is about 29 percent.

This is an industry driven by profit potential, famous for innovations that have revived the US economy along with the oil and gas industry. There’s no doubt that this is an industry that excels in finding solutions to tough challenges: now it’s time to use its considerable talents to solve the problem of delivery infrastructure in the US.

Article Author:  Chris Faulkner, CEO of Breitling Energy

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