Man Bites Dog: Oil Companies Sued for Flaring Gas—by Landowners!

By Michael Krancer
Follow me @MikeKrancer 

Oil and gas companies being sued for flaring natural gas into the atmosphere is not newsworthy.  You would expect the Sierra Club, Natural Resources Defense Council, or WildEarth Guardians to take such action; yet, there’s no story there.  But in a surprising turn of events, North Dakota landowners are suing oil companies about it!  Now that’s news.

Last week, North Dakota landowners filed 10 class-action suits against several oil companies, seeking millions of dollars in allegedly lost royalties.  The oil companies’ sin?  In their fervor to get Bakken crude oil out of the ground, they are flaring the natural gas that accompanies the oil in the formation.  To date, there is simply not enough natural gas infrastructure to bring either oil or natural gas to the market via pipelines.  For oil, that logistics problem can be overcome, to some extent, by using trains.  Train cars that transport oil have been at a premium lately due to the Bakken’s vastly increased production levels.  Natural gas, however, cannot be hauled by train, so it is flared at the wellhead.  From the landowners’ perspective, that is taking and throwing away their property without the required royalty compensation.

Increased oil production from the Bakken has been prodigious—somewhere in the neighborhood of 100,000 barrels per day since May.  That domestic Bakken oil production is what saved our two Southeastern Pennsylvania refineries from closing down, as well as the jobs and way of life of about 22,000 local workers.  Just a few weeks ago, Philadelphia Energy Solutions (“PES”) cut the ribbon on its unit train unloading facility.  The event was a celebration, especially for the 1,000 or so PES workers, including many brand new workers, who attended.   The PES facility will accommodate the unloading of two mile-and-a-half long unit trains, each carrying more than 140,000 barrels of American produced crude oil, every day.  This daily operation will move the needle on improving America’s balance of trade.  The project is also expected to create 65 new jobs.  The other refinery in Southeastern, Pennsylvania, which Delta Airlines purchased a year and a half ago through its subsidiary, Monroe Energy, will be using plenty of Bakken crude oil, too.

One report said that the value of the natural gas being flared is $100 million per month—not small change.  Yet the landowners want to force the oil companies to stop externalizing the cost of throwing out the natural gas in order to recover the oil.

The suits are a game changer in a few ways.  First, there will now be a hard and substantial economic incentive—pressure, really—to bring natural gas pipeline infrastructure to these remote areas and to reduce natural gas flaring.   Secondly, everyone will need to buckle down and try harder and faster at getting these two goals accomplished.   That will take a lot of investment.  Thirdly, as a corollary, these suits may end up resulting in more natural gas being brought to the market.  That would put downward pressure on prices.  We can only hope, however, that the short term impact of the suits will not stifle American oil production from the Bakken.  That would be tragic, and they would be celebrating that result in OPEC circles.

This entry was posted in Oil, Policy, Shale Gas by Mike Krancer. Bookmark the permalink.

About Mike Krancer

Mike Krancer is an experienced and well known policy and substantive thought leader in energy development and deployment. He is a valued advisor to U.S. and global energy companies of all types regarding the full range of legal, public policy, government relations, state and federal regulatory, financial, corporate, and labor matters with his 20+ years of energy industry and public policy experience at the highest corporate and policy-making levels.

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