North Dakota aims to nearly double pipeline capacity -governor

(Adds federal regulator comment, exemption information)

By Ernest Scheyder

BISMARCK, North Dakota, June 24 (Reuters) - North Dakota intends to nearly double its pipeline capacity within two years as part of a plan to curb the wasteful flaring of natural gas in the bustling Bakken oil field, the state's governor said on Tuesday.

While oil production has more than tripled in the past decade to 1 million barrels of oil equivalent (boepd) per day, making North Dakota the fastest-growing economy in the United States, the pipeline network for transporting natural gas has lagged.

Aiming to change that, Governor Jack Dalrymple said the state wants pipeline capacity to increase to 1.4 million boepd by 2016, up from roughly 780,000 boepd currently.

"We will reduce flaring," the governor told executives, regulators and investors at a pipeline summit he hosted in the state's capital. "It's just that simple."

Natural gas that is produced along with crude oil needs to be flared if there is no pipeline to take it to market or a processing plant. Roughly 30 percent of the fuel was flared in April, the latest month for which statistics are available.

While down from an all-time high of 36 percent in September 2011, Dalrymple had hoped for a lower number.

The governor, a Republican, known for working closely with energy companies on development, acknowledged that he cannot force Oneok, Enbridge, MDU Resources and other pipeline companies to expand their networks.

But he described himself as the industry's cheerleader and promised to encourage, through regulation and other means, more pipeline development to decrease reliance on trucking and railroads.

"Although rail has played a critical role to market our petroleum, over the long term we're looking for the safest way to market our product," he said.

Dalrymple and other regulators changed state policy on June 1 to require energy companies to submit a detailed plan when filing for a drilling permit about how they planned to capture and use any natural gas released by a new well.

Updated policies for existing wells are set to be released on July 1. Both steps effectively encourage the development of pipelines.

Oneok and other pipeline operators have been working aggressively to build their natural gas pipeline network in the state, though they have been constrained by cold weather, right-of-way issues and other factors.

Right-of-way access has become a hot-button topic in the state. Pipeline companies have grown frustrated as some landowners refuse requests to build through their land.

State regulators are attempting to craft rules that would appease both sides. Eminent domain remains deeply unpopular in the conservative state.

Federal regulators, though, bluntly warned pipeline operators to quickly resolve disputes with landowners.

"We support the rights of citizens," said Linda Daughtery of the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA). "You should work it out with the landowner long before it gets to the federal level."


North Dakota wells are only allowed to flare natural gas for one year after they begin production. If operators flout the rule, they will be fined production taxes on the value of the gas flared and royalty payments to the landowner.

Companies can petition for an exemption to the rule. Exxon Mobil and Occidental Petroleum filed the most exemption requests this month.

Such appeals have been falling steadily, though, and the new policy implemented on June 1 will encourage companies to not always expect the exemption.

While flaring reduction has been a key focus for the regulators, many residents see traffic as a bigger reason to build pipe, said Gene Veeder, head of the economic development office in McKenezie County, a key oil development region.

"Our local citizens are less worried about global warming then they are about the 1,100 trucks that go by their mailbox every day," Veeder said.

(Editing by Terry Wade, Jonathan Oatis and Alden Bentley)