Policy and Targets
Background and the Role of Reductions in Meeting Environmental and Economic Objectives
Both federal and state policy regulate flaring and venting In North Dakota. Because of increased drilling activity in the Bakken play, the volume of gas flared has increased rapidly and substantially, according to data provided by the Energy Information Administration. The total volume increased from 10 bcf in 2007 to 205 bcf in 2019; flare intensity has exceeded 300 cubic feet (cf) of associated gas per barrel of oil produced since the late 2000s, reaching 400 cf per barrel in 2019. The only exception occurred during the low oil price period of 2015–17, when the flare intensity averaged 220 cf per barrel.
The state put gas capture rules in place in 2014 to reduce the amount of flaring allowed from 26 percent to 12 percent of total associated gas produced by 2020 and 9 percent after 2020. About US$1 billion had been invested in infrastructure by 2016, and the gas capture rate reached 85 percent. However, during the oil price downturn, there was virtually no spending on gas capture infrastructure; operators focused on drilling in the Bakken’s core area, where wells produce more gas. Oil production bounced back quickly in 2018, exceeding takeaway infrastructure, and the gas capture rate declined until 2020, when the state reported a gas capture rate of 92 percent, largely as a result of decreased production amid the COVID-19 pandemic and new midstream capacity that came online in 2019.
Much of the oil and gas development in North Dakota has occurred on federal and tribal lands. The BLM manages 4.1 million acres of federal and Indian Trust mineral estate in the state. Federal onshore policy and regulation are applicable on these lands.
Targets and Limits
In the early 2010s, the North Dakota Petroleum Council’s Flaring Task Force targeted capturing 74 percent of associated gas in 2014, gradually increasing to 90 percent by late 2020; it proposed 95 percent as a potential target beyond 2020. The North Dakota Industrial Commission (NDIC) Order 24665, 2014, operationalized these targets, raising the 2020 target to 91 percent in 2018.
Legal, Regulatory Framework, and Contractual rights
Primary and Secondary Legislation and Regulation
North Dakota Administrative Code (NDAC) Chapter 43-02-03 provides guidance on oil and gas conservation. NDAC Section 43-02-03-45 bans venting and requires casinghead gas to be flared, with the estimated volume reported to the director of the oil and gas division of the North Dakota Department of Mineral Resources. Section 38-08-06.4 of North Dakota Century Code Chapter 38-08 declares gas flaring as restricted and describes the conditions under which an operator can flare. Order 24665, 2014, introduces restrictions on flaring that strive to meet the North Dakota Petroleum Council’s Flaring Task Force targets (see the previous section) and outlines requirements for obtaining exemptions for flaring and penalties for noncompliance with regulations and permit conditions. Federal and tribal policies apply to federal and Indian lands.
Sections 33.1-15-20-02 and 33.1-15-20-04 of NDAC Chapter 33.1-15-20: Control of Emissions from Oil and Gas Well Production Facilities require all oil and gas wells within the state to be registered with the North Dakota Department of Environmental Quality’s Division of Air Quality (DAQ) and adhere to emission controls. Section 33.1-15-03-03.1 of NDAC Article 33.1-15-03: Restriction of Emission of Visible Air Contaminants mentions restrictions applicable to flares. Section 33.1-15-07-02 of NDAC Article 33.1-15-07: Control of Organic Compounds Emissions prohibits the emission of organic compounds in gaseous and vapor forms except in emergencies unless they are burned in flares or controlled otherwise.
Flaring and venting in North Dakota are subject to both state and federal jurisdiction because a large share of production in the state comes from federal and tribal lands. The BLM’s North Dakota Field Office manages about 2,500 leases on federal lands and has trust responsibility for more than 3,000 leases on Indian lands. Tribal authorities may have jurisdiction in some situations. With respect to air emissions, the EPA plays a role by approving SIPs.
Associated Gas Ownership
Land ownership determines mineral rights. About 10 percent of land in North Dakota is federal or Indian land, where the respective government owners own subsurface oil and gas. The Fort Berthold Reservation encompasses more than 1 million acres and the two most-drilled oil formations, the Bakken and the Three Forks. Many reservoirs are also within the jurisdiction of the Mandan Hidatsa and Arikara Nation. In the rest of the state, private landowners own the rights to mineral resources under their land. In some cases, mineral rights may be severed from surface rights but are held privately. Companies obtain a concession from the mineral rights owner to explore for oil and gas. In case of a commercial discovery, the concessionaire owns oil and gas under the leased area. Under most private leases, royalties are not paid on lost gas, which includes flared and vented volumes.
Regulatory Governance and Organization
The Oil and Gas Division of the North Dakota Department of Mineral Resources regulates the drilling and production of oil and gas in the state (including drilling permits and gas capture plan), but the NDIC has jurisdiction over flaring and venting. DAQ , regulates emissions from upstream, midstream, and downstream oil and gas operations. The BLM and the EPA, and, in some cases, tribal authorities have authority over oil and gas operations on federal and Indian lands.
Regulatory Mandates and Responsibilities
The NDIC regulates the volume of gas flared at a well site under its mandate to conserve mineral resources (NDAC 43-02-03); DAQ regulates emissions from flares. DAQ’s remit includes when gas should be flared, the permissible types of flaring, and proper flare operation. Wells must be registered using the NDIC–issued well number with DAQ. DAQ regulations on air emissions are mostly based on EPA regulations.
Monitoring and Enforcement
Under NDAC 43-02-03-14, the NDIC, or its representatives, can access all sites and records across all oil and gas operations. DAQ has the authority to inspect oil and gas sites to ensure compliance with its air permits and the proper functioning of emission control equipment. Both the NDIC and DAQ can enforce compliance using monetary and nonmonetary penalties.
Nevertheless, regulators have struggled to ensure compliance, mainly because of a shortage of midstream capacity but also because of problems at well sites. In October 2020, for example, DAQ issued a compliance alert with respect to air emissions from oil and gas operations. The alert listed several problems with flare equipment and leaks from various equipment as key concerns.
Flaring or Venting without Prior Approval
North Dakota Century Code Section 38-08-06.4 , allows gas flaring from oil wells up to one year from first production. The venting of casinghead gas is not allowed under any circumstances; instead, operators must have equipment in place to flare.
Authorized Flaring or Venting
According to North Dakota Century Code Section 38-08-06.4, after the first year of production, flaring must cease. The operator can cap the well, connect it to a gathering system, increase the use of associated gas, or use the gas in any other beneficial action approved by the NDIC. Operators may apply for a flaring exemption if the connection of a well to a natural gas gathering line is economically infeasible.
DAQ has an independent permit application for flares associated with air quality and the control of pollutants for oil or gas production facilities classified as a major stationary source or a major modification.
Order 24665, 2014, requires upstream operators to submit a gas capture plan with every drilling permit application to the NDIC. Gas capture plans must include information on area gathering system connections and processing plants, the rate and duration of planned flowback, current system capacity, and a timeline for connecting the well. They must also include a signed affidavit verifying that the plan has been shared with area midstream companies.
The NDIC allows production from horizontal wells in Bakken and Three Forks Pools for up to 90 days (one year in noncore areas) at the maximum efficiency rate irrespective of flaring volumes. After 90 days, the operator should either meet gas capture goals or limit production. NDIC Order 24665, 2014 provides flexibility in the form of temporary exemptions from production restrictions for up to one year if an operator files a request and provides the necessary documentation. The NDIC may consider further flexibility under other extenuating circumstances after notifying the operator and hearing whether the exemption is expected to result in a significant net increase in gas capture within a year. The NDIC has also implemented a gas capture credit system (see the Use of Market-Based Principles section of this case study).
According to Order 24665, 2014 , well payouts and economics should not be used to determine the production restrictions imposed on operators that do not comply with gas capture plans. At the same time, the order allows for the maximum efficient rate of oil production in many circumstances. The NDIC tries to distinguish between operators that are connected to gathering systems but flare and those that flare because of midstream bottlenecks. Over the years, the NDIC policy and regulation have shifted toward encouraging investment in midstream infrastructure. Nevertheless, the comparison of the value of oil and the value of associated gas if captured remains central to operators’ decisions to invest in capture infrastructure and the NDIC’s assessment of drilling applications and flaring exemptions.
Measurement and Reporting
Measurement and Reporting Requirements
NDAC Section 43-02-03-52.1 requires reporting of the amounts of gas associated with oil wells from the first day of production, including flowback and production test gas and flared volumes, using Gas Production Report Form 5B. NDAC Section 43-02-03-44 mandates all measurement equipment and volume determination used for reporting casinghead gas to be compliant with American Gas Association standards.
DAQ requires operators to submit an Incinerators or Flares Annual Emission Inventory Report. Oil and gas operators may be responsible for submitting additional environmental reports to both DAQ and the EPA. Operators must use air quality models or formulas included in different chapters of NDAC Article 33.1-15 while reporting air emissions data.
Measurement Frequency and Methods
Per NDAC Section 43-02-03-52.1, Form 5B must be reported monthly on or before the fifth day of the second month after the gas was produced. In November 2018, North Dakota loosened flared gas reporting regulations, allowing producers the option of excluding particular well sites that fall under certain criteria from their reporting.
Per NDAC Section 43-02-03-52.1, Form 5B requires an accounting equivalency: Gas produced minus lease-use gas minus flared gas must equal wet gas transferred. Certain sections of NDAC Article 33.1-15 include formulas to use when calculating emissions.
NDAC Section 43-02-03-85 requires all oil and gas to keep records on all of their operations covered under NDAC Chapter 43-02-03 for at least six years.
Data Compilation and Publishing
Flared gas volumes are reported by the North Dakota Department of Mineral Resources along with other production data. The Energy Information Administration compiles data from states and reports on its website, but the data are incomplete (see the Data Compilation and Publishing section of the United States: Federal Onshore case study).
Fines, Penalties, and Sanctions
According to North Dakota Century Code Section 38-08-06.4, violators of flaring exemptions will pay production taxes and royalties on flared gas. NDIC Order 24665, 2014 outlines penalties the NDIC may impose on operators for failing to comply with gas capture goals. Penalties start at US$1,000 a month, commencing the month following the month in which the operator fails to attain the gas capture goals, oil production exceeds production restrictions, and the operator fails to file for a hearing with the NDIC. Penalties double every month of noncompliance up to a maximum of US$12,500 a month. The same level of penalty applies if an operator fails to comply with production restrictions for three months despite monthly notices of violations from the NDIC.
North Dakota Century Code Section 38-08-16 allows for civil penalties that can be imposed on oil and gas operators that violate any rule, regulation, or order from the NDIC. Civil penalties may be up to US$12,500 for each offense. Each day’s violation is a separate offense.
Operators of oil wells that do not report associated gas volumes by the due date (see the Measurement and Reporting Requirements section of this case study) may be shut in for up to 30 days. If operators continue to produce gas during the shut-in period, they will be subject to penalties. North Dakota Century Code Section 38-08-16 states that a person who willfully violates any rule or order of the commission that pertains to the prevention or control of pollution or waste is guilty of a Class C felony. A court of competent jurisdiction may impose a criminal penalty.
The NDIC regulations are designed to provide operators maximum flexibility to manage their drilling, operation, and gas capture plans within the gas capture goals . The standards are applied state-wide, then at the county level, field level, and well level. The enforcement mechanism provides that if the operator cannot attain the capture goals at the maximum efficiency rate, wells will be restricted to 200 barrels of oil a day if at least 60 percent of the monthly volume of associated gas produced from the well is captured. Otherwise, oil production from such wells should not exceed 100 barrels of oil a day.
Because of the unique properties of the geologic formations in Bakken, DAQ has developed guidelines and regulations related to the air quality requirements of facilities producing and processing oil and gas from these formations. More efficient pollution control is required for tanks located on sites where the emissions of volatile organic compounds from tanks are greater than 20 tonnes a year, and such controls must be in place and operational within 60 days of production starting.
Companies need to meet certain performance requirements to qualify for a DAQ air permit (see the Authorized Flaring or Venting section of this case study). NDAC Section 33.1-15-20, 2019, focuses on preventing significant deterioration of air quality as a result of emissions from oil and gas well production facilities and refers to many other sections of Chapter 33.1-15 on Air Pollution Control. NDAC Section 33.1-15-20, 2019, provides a formula to calculate emissions, which should meet ambient air quality standards as outlined in NDAC Section 33.1-15-02, 2019. Flares must have automatic ignitors or continuously burning pilots, and the flare stack must be tall enough for adequate dispersion of emissions. NDAC Section 33.1-15-07, 2019, bans the release of organic compounds in gaseous and vapor forms except in emergencies or when flared or combusted in another effective control device approved by the NDIC. NDAC Section 33.1-15-03, 2019, restricts the opacity of emissions from flares.
According to DAQ, equipment at oil and gas facilities in North Dakota may be subject to Title 40 CFR § 60 and § 63. DAQ has also implemented the national NSPS, as outlined in Title 40 CFR 60 Subpart OOOO and Subpart OOOOa. Flares on federal and Indian lands must meet federal performance requirements, as detailed in the Performance Requirements section of the United States: Federal Offshore case study.
Fiscal and Emission Reduction Incentives
NDAC Section 43-02-03-60.3, 2014, states that any operator seeking to have a well certified for purposes of eligibility for the gas tax incentive provided in North Dakota Century Code Section 57-51-02.6 should apply for certification as an oil or gas well employing a system to avoid flaring. Gas is exempt from tax for 2 years and 30 days from the date of first production if either of these conditions is met:
- The gas is used at the well site to generate electricity, and at least 75 percent of the gas is consumed.
- The gas is collected at the well site by a system that takes in at least 75 percent of the gas and natural gas liquids volume (more than 50 percent of propane and heavier molecules) for beneficial consumption, such as the production of petrochemicals or fertilizer.
The gas tax rate was as high as $0.18 per mcf in 2009 and 2010. It was reduced in 2015. In July 2021, it was set at $0.04 per mcf.
Use of Market-Based Principles
Per NDIC Order 24665, 2014, an operator is allowed to accumulate credits for LNG utilization, CNG utilization, and volumes of gas captured during the most recent six months in excess of the current gas capture goal. The NDIC grants the use of credits to meet monthly gas capture target only under certain circumstances: right-of-way issues, midstream outages, federal regulations, safety issues, delayed access to electricity, and possible reservoir damage. Credits cannot be transferred to another operator. Unused credits expire after six months.
Most transportation contracts are for interruptible service, which means a producer may be denied the ability to transport natural gas in a gathering system if the system is constrained, such as when a shortage of processing capacity causes downstream bottlenecks. In November 2019, the NDIC issued an order to encourage firm (that is, uninterruptible) service agreements, which would guarantee access to pipelines.
Negotiated Agreements between the Public and the Private Sector
The North Dakota Oil and Gas Research Program, an NDIC initiative, is a joint state and industry effort established in 2003 that supports research into oil and natural gas exploration and production. Recent projects include efforts to develop methods for reducing flaring through small-scale gas-to-liquids, CNG, LNG, and electricity generation.
Interplay with Midstream and Downstream Regulatory Framework
Per NDIC Order 24665, 2014, operators must submit signed affidavits to the NDIC when applying for a drilling permit to prove that they have communicated their gas capture plans with midstream companies. Ideally, this procedure would prevent drilling before sufficient midstream capacity is available. The NDIC envisions separate semi-annual meetings with gas gathering companies and operators that had repeatedly failed to meet gas capture goals. The NDIC considers timely communication among producers, midstream companies, and the NDIC essential to coordinate upstream and midstream development and reduce flaring. See the Interplay with Midstream and Downstream Regulatory Framework section of the United States: Federal Onshore case study.