A pipeline company is fighting the practice of flaring gas in Texas, threatening to slow the pace of oil production.
Flaring gas has become an epidemic in Texas. Permian drillers have ramped up oil production to astounding levels, which has led to a wave of associated natural gas output. But while there have been serious constraints for moving oil on pipelines, the bottlenecks for gas pipelines are even worse. With no place to put the gas, shale companies are simply lighting the gas on fire and flaring it off into the air.
In the Permian and the Eagle Ford, shale drillers flared an average of 740 million cubic feet of natural gas per day in the first quarter, according to the Wall Street Journal. The amount of gas burned off into the air in the first three months of the year was worth $1.8 million per day and emitted the equivalent greenhouse gas emissions of 5 million cars, the WSJ said.
Perhaps even more shocking is the fact that the Texas Railroad Commission, the oil regulator in Texas, has received more than 27,000 requests for flaring permits in the last seven years, and has not denied a single request, according to the Wall Street Journal. There are ostensibly limits on flaring in the state, but in practice nothing is really enforced. “Then why have the statue in the first place?” John Hays Jr., an attorney with pipeline operator Williams Co., said in an interview with the Wall Street Journal.
As WSJ notes, Williams Co. is trying to contest a flaring permit request by Eagle Ford shale driller Exco Resources. Exco apparently wants to flare all of the gas from a series of wells in South Texas despite the fact that the wells can be connected to existing pipelines. Exco wants to flare the gas because its more profitable than buying space on the pipeline. Williams fears that unchecked flaring would be a setback for pipeline companies who look for contracts before building new pipelines.
Texas shale drillers have not run into significant resistance to flaring to date, but opposition from a powerful midstream company may pose a more formidable obstacle. If the Texas Railroad Commission denies the permit, it could slow the pace of oil production in the state.
Evidence of this dynamic is already visible in North Dakota, where flaring is also running well above state limits. But the constraints on flaring in the Bakken, such as they are, are nonetheless having more of an impact than they are in Texas. North Dakota’s Lieutenant Governor Brent Sanford told an industry conference that Bakken oil production would be vastly higher if not for bottlenecks on capturing natural gas.
“The only thing keeping us from setting a new oil production record is our gas production. It is outpacing our oil production and makes it difficult to meet our gas capture goals,” Sanford said at the Bakken Oil and Gas Conference Expo in Bismarck, according to S&P Global Platts. Sanford argued that North Dakota would be producing 2 million barrels per day (mb/d) if not for gas constraints, up from roughly 1.4 mb/d currently. He said that the “gas capture challenge is limiting further growth.”
North Dakota has a “goal” of limiting gas flaring to 12 percent of gas produced for this year, a limit that will decline to 9 percent in November 2020. However, as recently as May 2019, the industry flared about 19 percent. Nevertheless, state regulators say that drillers are throttling back on oil production in an effort to curtail flaring.
Meanwhile, not too far away in Alberta, natural gas drillers are facing the prospect of “widespread corporate failures, significant job loss,” and a “liquidity crisis,” according to a group of gas companies. The issue there is also one of pipelines, although in Alberta, amid pipeline constraints, gas producers are fighting for access with TC Energy (formerly TransCanada). When pipelines go offline for maintenance, gas producers say prices suffer from severe volatility and rock bottom prices. Natural gas in the region recently dippedinto negative territory. More than a handful of gas drillers are proposing voluntary production cuts, with some even calling for mandatory curbs similar to those seen for the oil industry.
In all cases, natural gas production has outpaced the ability to capture it. The result is financial pain for the drillers themselves, and in some cases, an impact on oil production.