N.D. senators push federal government to accelerate oil, gas infrastructure, lease sales

Following Russia's invasion of Ukraine, US senators representing North Dakota are pushing federal regulators to accelerate the approval process for new natural gas infrastructure in the Bakken and elsewhere as gas-capture capacity limits oil growth in the play.

"Some natural gas projects have waited more than two years for [Federal Energy Regulatory Commission] consideration, even with their final [environmental impact statement] completed," said US Senator John Hoeven, a Republican. "It is unreasonable to move the goalposts on these applications now. These policy changes not only increase time and cost for these projects, which get passed on to consumers, they will lead some developers to abandon needed energy infrastructure projects entirely."

The senator referred to two policies FERC recently approved that impose new standards and considerations on the approval of natural gas infrastructure, including pipelines.

"Without pipeline capacity, we cannot get natural gas to the areas where it is needed most, including to our allies in Europe to reduce their dependence on Russian gas," Hoeven added.

Fellow US Sen. Kevin Cramer, also a Republican, joined Hoeven in introducing the American Energy Independence from Russia Act March 3, which would fast-track LNG export projects and increase oil and gas lease sales in producing states.

Oil production in the Bakken does not have much room to grow currently without investments in more natural gas takeaway.

During the latest round of earnings calls, most Bakken operators have committed to high gas capture targets going forward to meet environmental, social, and corporate governance standards. For example, Marathon Oil announced plans to capture 99% of all associated gas produced.

North Dakota gross gas production leveled out to average 3 Bcf/d over the fourth quarter of 2021, according to state data. This was just below the all-time high of 3.14 Bcf/d set in November 2019. The state's gas capture averaged 94% over Q4 2021 and was the strongest quarter on record for gas capture. As gas-to-oil ratios continue to climb in the play, additional gas takeaway and processing capacity are needed to grow either commodity further.

The only new processing facility currently under construction in the Bakken is Oneok's Demicks Lake III, which is slated to add 200 MMcf/d of new processing capacity when it comes online in early 2023.

The Bakken remains the No. 3 play in the US, based on internal rates of return per well, according to S&P Global Commodities Insight data. It barely trails the Permian Delaware and Eagle Ford, but all three sit well over 60% as WTI and Brent surge. S&P Global's IRRs are based on a half-cycle, after-federal corporate tax analysis, which excludes sunk costs such as acreage acquisition, and seismic and appraisal drilling.

Crude futures surged March 7 after US officials signaled over the weekend that it and its allies are discussing a coordinated ban on imports of Russian oil. With risks to the exports of Russian oil, front-month NYMEX WTI hit 14-year highs to near $118/b, while the May ICE Brent crude futures contract hit $130.89/b, the highest since July 22, 2008.