The Next Natural Gas Powerhouse Is ... North Dakota

Bakken Midstream is turning North Dakota into a natural gas powerhouse.

North Dakota is the second-biggest producer of oil in the U.S – oil that includes a “fairly rich stream of natural gas and natural gas liquids,” says Mike Hopkins, CEO of Bakken Midstream.

The problem is that North Dakota isn’t taking advantage of those natural gas resources. It doesn’t have the infrastructure – the pipelines, processing facilities and storage facilities – to utilize the gas. In addition, vast quantities of the natural gas are “flared,” or burned off, in the oil-producing process. “If you weren’t doing that, the natural gas would be worth about $500 million a year,” Hopkins says.

That’s what Bakken Midstream plans to make a reality. “We intend to create this whole value-added industry, with many companies coming into North Dakota to do value-added work,” says Hopkins. The products produced would be mostly for export. “We want to make North Dakota a real energy hub,” he adds.

Steven Lebow, a former investment banker with Donaldson, Lufkin and Jenrette, is chairman and co-founder of Bakken Midstream. He co-founded DLJ’s LA office in the 1980s and financed such companies as Costco, Starbucks, PetSmart, Dick’s Sporting Goods and ULTA Beauty.

Lebow, of Westlake Village, Calif., has spent the past several years assessing the situation in North Dakota, getting to know the people there, and establishing relationships with those important to making his vision come true. Investors include Costco’s chief financial officer, the chairman of ULTA Beauty, and one of Ross Stores’ co-founders. Bakken is also in partnership with North Dakota’s state government.

Says Hopkins, “I have never encountered a state government that is so business-oriented and so committed to improving the situation in N.D. They totally get that they’ve not taken advantage of this natural gas wealth.”

What Hopkins has encountered – and what makes him so valuable to Bakken Midstream – is a situation similar to the one facing North Dakota today. In the late 1970s, Alberta, Canada, had an abundance of natural gas, a shortage of gas infrastructure, and waste and pollution from the gas being flared. Today, it is a world-class producer of value-added natural gas products.

Hopkins not only watched it happen – he was intimately involved. He spent 18 years in Calgary with the Canadian law firm Bennett Jones – and his specialty was working with companies building gas pipelines, natural gas liquid pipelines, fractionation, gas storage, liquid storage and petrochemical companies. He knows what worked and what didn’t. He also developed rock-solid relationships with Canadian energy and infrastructure companies – so much so that one of those companies has signed on as a strategic partner for Bakken Midstream.

Before joining Bakken Midstream, Hopkins was looking to move on after 15 years with Ice Energy, developer of the Ice Bear energy storage air conditioner. The unit stores energy by making ice during off-peak hours, then uses the stored ice at peak hours. Hopkins felt it was time for a transition of leadership.

“After years of raising money, doing deals, driving sales and growth, it seemed to me to be the right time for the company to get focused on the next job — large-scale deployment,” he says.

That’s when Lebow, Hopkins’ friend and colleague, tapped Hopkins as Bakken’s CEO.

Hopkins calls it “a venture that’s decades in the making. We’re going to get results sooner, but if you’re going to create an entire new industry – it will take decades. It will last for generations. It will change the lives of people in North Dakota. And it will create energy independence.”

Presently, Bakken Midstream has completed its first round of funding to run the company and fund the development work being done. It is investigating projects, identifying sites, and developing partnerships.

“As projects get properly and completely defined – when we know what we’re going to build, where, and who with – that will be financed as a project,” Hopkins says. He adds, “I would hope the first project that we will undertake will be announced before the end of the year.” He looks for that project to be up and running as early as 2022.

Once that first project gets locked in, Bakken Midstream will start work on the next one. That might include acquiring existing processing plants and pipelines in North Dakota. “We don’t have unlimited time to do this. The situation with flaring is not tolerable, and exporting of the opportunity to do value-add is not acceptable,” Hopkins says.

The fundamental benefit of natural gas is that it’s the cleanest fossil fuel there is. Of course, it’s not as clean as wind or solar. However, it has the benefit of being a controlled and controllable resource. The sun isn’t always shining, and the wind isn’t always blowing. “So you use renewables as much as you can. And when the renewables aren’t there, you use natural gas,” Hopkins says.

Hopkins characterizes natural gas as a bridge to the future. “We need to use it until we get to the ‘promised land’ of all renewables, all energy storage. I believe that someday that will happen, should happen – but it’s some period of time off.”

In the meantime, we need the products we can derive from natural gas: ethane to make plastics, propane for heating, butane to enhance gasoline, pentanes to make foam – and natural gas itself for power generation.

“Whether you’re a fan of plastics or not a fan of plastics,” Hopkins says, “everyone in the world uses plastics to a very significant degree.” The manufacturing process requires gas liquids, which in turn come from natural gas. “For the foreseeable future, we’re going to need that. You don’t get that from renewables or any source other than the ethane in natural gas.”

Getting North Dakota to the finish line won’t be cheap. Over time, Bakken Midstream can expect to spend billions of dollars on projects it will develop, construct, own and operate. Some of the capital will come from investors, and some from private equity and infrastructure funds looking for long-lived projects in safe environments, not in dangerous areas of the world.

Says Hopkins, “It’s a perfect investment for large infrastructure funds that like to put their money to work for decades and know it’s going to be safe, with great returns. Everyone will benefit from this. The people who sell us gas and gas liquids will make money. We will make money as owner and operator of the infrastructure. The people who buy the products of that infrastructure will get products at a good price they can make money from. And the state of North Dakota will get new jobs and tax revenue.”