Archive for May, 2012

Reuters reports that natural gas pipeline operator Spectra Energy Corp will spend between $4 billion and $6 billion in British Columbia after 2015 to build large pipelines connecting the Canadian province with energy-hungry Asian markets. Production from North American shale fields has resulted in an oversupply of natural gas, prompting companies such Dominion Resources, Sempra Energy and Southern Company to look at exports.

That’s great for Canada. But what’s going on in our back yard, or Bakken yard, in North Dakota?

You can get an idea of what drilling for oil in the Bakken is like by shaking up a 2-liter bottle of soda and then punching a nail through the bottle cap. In this case, the 2-liter bottle is the reservoir that they’ll frack at a depth of two-plus miles beneath the surface, the soda is the oil and the bubbles schpritzing out of the bottle represent the “associated” natural gas. But the drillers in North Dakota are not out there for the natural gas. They just want the oil. So what happens to all that natural gas?

It’s estimated that more than 100,000,000 cubic feet per day is being “flared,” which is a euphemism for “wasted.” But because methane is so much worse than the carbon dioxide as a greenhouse gas, it’s better to burn it than let it escape into the atmosphere.

Just how much natural gas is that?

Well, one cubic foot is the equivalent of 1,000 Btus. The volume of the CME/NYMEX futures contract is 10,000 million Btus, or 10,000,000 cubic feet.

So every day in North Dakota is the equivalent of telling your commodities broker to buy ten NYMEX futures contracts for you and then setting them all on fire.

Dollar-wise, assuming a NYMEX close of $2.50/million Btus, that’s $250,000 a day, or about $91 million dollars a year.

That’s why the night sky over Williston glows with the reflected light of so much flared gas. No other domestic field flares anywhere near that much natural gas.

What is to be done? One idea is to build gathering systems, processing plants and pipelines to make the “wet” gas “dry” (i.e., take out the propane, butane and other little critters that come up with the gas) and carry it to markets. The wellheads are dispersed over a large area, though. Another is to liquefy it and transport the LNG by truck. Export the natural gas to hungry Asian markets? Yet another is to capture some of the energy with turbine electric generation, either as prime power on remote sites or, if a transmission line is within a reasonable distance, paralleled with utility and sold back into the grid.

As always, the discussion of energy always comes around to a discussion about infrastructure, whether it’s pipelines or wires or something else. None of the above alternatives is cheap, and with gas bouncing along in the $2 to $2.60 range, or dipping below $2 as it did in April, the economic viability of these alternatives is in question.

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