If you look at a satellite map of the United States at night, you’ll witness a puzzling sight.
Of course, the Midwest looks pretty dark – except for some places like Chicago. And vast population centers like the East and West coasts are lit up like a Christmas tree.
But you’d also see a huge cluster of light in a rather unexpected part of the country – North Dakota.
No, the nation’s third-least populous state isn’t experiencing a surge in population growth.
The lights actually represent the state’s booming oil industry. As you’ll see, however, the state could go dark very soon…
North Dakota’s Flaring Party
The lights over North Dakota are generated by massive amounts of natural gas being flared into the atmosphere.
The oil drilling and production in the shale-rich region – more commonly known as the Bakken – produces natural gas as a by-product. And flaring refers to the burning off of this excess natural gas.
Why are these companies just burning billions of cubic feet of natural gas without a second thought?
The reasoning is two-fold.
First, natural gas prices are at $4.20 per thousand cubic feet (mcf). Any potential profits that could generate for a company are negligible when compared to oil at $100 per barrel.
Second, they can get away with it, since North Dakota has very liberal laws when it comes to flaring natural gas.
Add on to that the state’s lack of pipelines and transportation for natural gas to distribution hubs, and oil companies just haven’t bothered to capture the gas.
The flaring situation in North Dakota is so infamous, that when I was in Alaska visiting with the governor’s point man on energy, he told me that they don’t allow that type of flaring in Alaska. The potential damage to the environment is too severe.
Well, someone in North Dakota is apparently listening. Because the party is about to come to an abrupt end.
Tighter Regulations Mean Lights Out?
Beginning next year – and by the end of this decade – flaring natural gas in North Dakota will be reduced to a trickle.
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New laws and regulations have been enacted to force companies to nearly eliminate the flaring – or face shutdowns of oil wells or stiff fines.
This move has significant long-term ramifications for the oil and gas industry.
It means that the gas being flared will now have to be captured. Yet, as I mentioned before, there is really nowhere to store this captured gas – and that’s creating a pipeline opportunity to get the gas to market.
One company that’s ready and willing to address this need is MDU Resources (MDU), which is headquartered in Bismarck, North Dakota.
It’s bidding to do the work through its WBI Energy subsidiary. (WBI Energy currently has natural gas pipelines, as well as associated systems and services, in the Rocky Mountain and northern Great Plains regions of the United States.)
Natural gas is definitely in vogue right now, and it will continue to grow in consumption faster than crude oil.
But, as I have stated many times in the past, there is a lot of it. And that fact alone will continue to pressure prices to stay in the $3.50 to $6 range for years to come.
Sure, there will be spikes due to weather or natural disaster. And LNG exports will help, as will increased consumption. But the underlying fact is that there is no shortage of the resource.
Until gas prices really ramp higher, the main profits will only come from companies that can increase efficiency of production.
Bottom line: You can’t afford to ignore the pick-and-shovel plays like MDU and Basic Energy Services (BAS) that will outperform if gas prices remain stable.
And “the chase” continues,