ND lawmakers mulling tax exemption for natural gas

BISMARCK, N.D. (AP) -- The amount of natural gas wasted as a byproduct of oil production in North Dakota could be significantly cut under legislation that would give energy companies a tax exemption if they capture and utilize the gas, a state regulator said Tuesday.

About 30 percent of the state's gas production is being burned off or "flared" because development of the pipelines and processing facilities needed to handle it has not kept pace with production, said Lynn Helms, director of the Department of Mineral Resources.

Oil companies in North Dakota can flare natural gas for a year without paying taxes or royalties on it. But a bill being discussed Tuesday by the House Taxation and Finance Committee would extend the exemption for two additional years if a company collects at least 75 percent of the gas at well sites.

"It gives us new tools for the tool box to address this enormous problem," Helms told the panel.

The U.S. Energy Information Administration says less than 1 percent of gas is flared from oil fields nationwide, and less than 3 percent worldwide.

Rep. Todd Porter, R-Mandan, one of the bill's sponsors, told lawmakers the intent of the tax exemption is to "incentivize the industry" in North Dakota. He said it would encourage drillers to run generators powered natural gas at well sites where there is no pipeline to capture the gas, or to convert it to diesel, fertilizer or other products that could be manufactured in the state.

Otherwise, he said, "the resource is basically going up in flames."

The long-term goal is to capture and transport the bulk of the natural gas produced in the state by pipelines, Helms said. Smaller processing plants at wells not served by pipelines could cut the amount of gas wasted at present by one-third, he said.

Oil production averaged more than 733,000 barrels daily in November, the most recent month for which figures were available. Natural gas output for the month was 782 million cubic feet a day — and the amount of gas wasted daily in the state could heat about 25,000 homes, Helms said in an interview.

About $4 billion in infrastructure improvements have been built in North Dakota to capture natural gas and move it to market, but another $4 billion in gathering systems is needed to keep pace with the state's record oil production, Helms said.

About $70,000 in tax revenues and royalties is being lost every day as natural gas literally goes up in smoke, Helms said.

Ron Ness, president of the North Dakota Petroleum Council, said in an interview that the industry is committed to capturing natural gas, but that it will take time.

"Nobody wants to see (less flaring) more than we do," said Ness, whose group represents several hundred companies working in the state's oil patch.

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