Bakken Natural Gas Pipeline Investing

Brian Hicks

Written By Brian Hicks

Posted June 3, 2013

More natural gas could be flowing from the Bakken in the foreseeable future.

WBI Energy, a subsidiary of MDU Resources Group (NYSE: MDU), announced a natural gas pipeline that would connect from North Dakota to the Viking Gas Transmission in Moorhead, Minnesota, where the gas could service parts of the Midwest.

pipeline tubesCosts for the project are anywhere from $650 million to $700 million, and it would transport up to 400 million cubic feet of natural per day – 500 mcf if WBI becomes truly ambitious. The pipes would be 24 inches in diameter, and the system would include two compressor stations.

WBI Energy owns and operates over 3,700 miles of natural gas and gathering pipelines throughout Montana, Wyoming, North Dakota, and South Dakota.

Since 2010, WBI has invested $150 million in North Dakota projects. Combined with current and future commitments, WBI will have invested over $1 billion in the Bakken.

Governor Jack Dalrymple gave his approval of the project in hopes of reducing flare gas and progressing North Dakota’s energy economy.

After all the necessary permits and regulations are said and done, construction of the pipeline is set to begin in 2016, and it should be completed later that year.

The project may be years away, but WBI will be looking for service providers from natural gas or utility companies as early as this summer.

Having more pipelines in the region would allow drillers to transport a greater amount of natural gas to market while cutting down on flare gas in the process.

Most of the focus in the Bakken has been on crude, but shining an equal light on natural gas will prevent product gluts and wasted money, and it will maintain operational efficiencies.

Natural Gas Value

According to estimates from the U.S. Geological survey, there could be 6.7 billion cubic feet of undiscovered and recoverable natural gas reserves in the Bakken. Crude reserve estimates for the Bakken and Three Forks formation are 7.38 billion barrels – an increase of more than double from the 2008 estimate of 3.6 billion barrels.

But greater crude production will lead to more flared gas.

Companies in the Bakken can make just as much a killing from natural gas as they would from crude with the right infrastructure in place.

Unlike crude, natural gas cannot be transported by truck. Natural gas sites need pipelines and processing plants for operations to flow smoothly.

And it is all the more necessary for crude production in the Bakken.

But as more wells are drilled, more natural gas will be wasted as it is burned off in pursuit of crude. Still, it is a much better option to burn off natural gas as opposed to converting it to methane and releasing into the atmosphere, which can pose a greater pollution risk.

The U.S. Energy Information Administration released data stating that 29 percent of produced natural gas from North Dakota was flared in 2011. Natural gas is mainly being burned because the region does not have the necessary infrastructure to support large-scale natural gas shipments.

But the resource is still a valuable commodity despite the current glut. It can be converted into compressed natural gas for vehicles or liquefied natural gas for shipment to places in Asia or Mexico. Companies still have plenty of options when coming across the commodity.

North Dakota state regulations dictate that drillers can burn off natural gas for one year without having to pay royalties or taxes on it. Producers are eligible for an extension, but once it has expired, companies will have to pay dues on natural gas that is flared.

Since most drillers are in the region for one year or longer, they are burning their wallets as well as natural gas that could have been processed. But it’s still cheaper for many companies to flare than to build pipelines.

Iraq is currently having companies like Royal Dutch Shell (NYSE: RDS-A) develop infrastructure to deal with the waste of flare gas, and the U.S. could follow the same model.

Flare gas itself is controversial, since it emits carbon dioxide and other pollutants in the air, but it can still be harnessed and converted into energy.

According to data from the World Bank, the U.S. ranked fifth in the world for natural gas flaring – having burned 7.1 bcm in 2011. The report cited the Bakken of North Dakota as the primary region burning off gas within U.S. borders.

But if more energy companies specialize in pipeline construction, building natural gas pipelines on behalf of producers, finding buyers would be no problem.

Pipeline Investment

Investing in pipeline networks is a good option because pipeline companies will have enough clientèle to profit.

Energy companies that burn natural gas do so out of necessity. Most drillers would gladly take advantage of a natural gas pipelines if it were in place.

The pipeline approval process may be a slow and grueling one when factoring in regulations, permits, and location, but it can be a massive payoff in the end. Commodities will be shipped faster, the actual construction process does not take long, and it is cheaper to ship via pipeline than by train.

Natural gas producers are already suffering from high production costs and low domestic prices. They need a helping hand from companies like Enbridge Energy Partners (NYSE: EEP) and WBI Energy to provide networks for them.

And natural gas pipelines will help crude-specialty companies find an extra avenue of income. 


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