Report: Companies could gain big by trapping gas, not flaring
Requiring oil and gas companies to capture 98 percent of natural gas produced in Texas could yield $440 million of additional revenue from increased gas production by 2025, according to a new report.
If the state were to adopt such a policy, it would nearly eliminate routine flaring in the Permian Basin of West Texas, according to a Rystad Energy report commissioned by the Environmental Defense Fund and released Tuesday. The policy would sharply reduce greenhouse gas emissions, but also allow operators to capitalize on the increased natural gas production.
“We’re talking about stopping the release of something with value,” said Colin Leyden, director of regulatory and legislative affairs with the EDF. “There’s significant value creation to be had with a 98 percent gas capture metric.”
The oil industry has long battled the issue of flaring, the burning of excess natural gas that’s produced during crude production. Flaring releases greenhouse gases such as methane, which is 84 times more capable of trapping heat than carbon dioxide, according to the Environmental Defense Fund. A trillion cubic feet of natural gas has been flared on the Texas side of the Permian Basin since 2013, according to the Energy Information Administration.
Flaring in the Texas Permian Basin has fallen to the lowest level in nearly a decade after the lockdowns during the coronavirus pandemic slashed crude demand and oil and gas production. Rystad estimates that 390 million cubic feet per day of natural gas — representing 1.6 percent of production — was flared in the fourth quarter of 2020, the lowest since 2012. For comparison, more than 4 percent of the natural gas produced in the Permian Basin was flared in 2018 and 2019.
As oil production rebounds from the
pandemic, however, flaring is expected to rise.
“In terms of whether that large reduction is sticky or not, the jury is out,” said Mike Mccormick, a principal at Rystad. “We haven’t seen an uptick in flaring yet.”
Still, the Environmental Defense Fund is pushing to keep flaring at historically low levels. The environmental advocacy group is proposing that Texas implement gas capture requirements similar to those enacted recently in North Dakota and New Mexico. Some Democrat legislators in Texas are also calling for a tax on flaring.
Complying with a 98 percent gas capture rule in Texas is estimated to cost oil and gas companies about $50 million by 2025. Less than a fifth of oil and gas companies would incur costs of about $100,000 a year to meet a prospective gas-capture rule, according to Rystad.
Several major oil and gas companies have already made a concerted effort to reduce flaring as investors and political leaders have grown increasingly concerned about climate change. More companies are expected to implement flaring reduction measures after French utility giant Engie last year canceled a $7 billion deal to buy liquefied natural gas from South Texas because of concerns about flaring.
The Texas Oil and Gas Association’s methane flaring commission, a group of 40 oil and gas companies, is working on improving operations and environmental practices to minimize flaring, such as using robots and drones to detect leaks. In November, the Texas Railroad Commission, which oversees oil and gas companies in the state, required operators to provide more details and reasons for flaring in an effort to bring more transparency to the issue.
Railroad Commissioner Jim Wright on Tuesday said flaring must be allowed until the commission might require proper natural gas connections before starting crude production, but he added that flaring must be regulated. He suggested that the commission ask oil companies to seek greater details on their need to flare and ask for a timeline for pipelines to transport the associated natural gas coming out of the well.
“My aim is to require any applicant who applies for authority to flare during my term, to show how and when their production of natural gas will be transported correctly for marketing,” Wright said. “I am amenable to allowing fair time for flaring to occur in certain circumstances, but limits must be set.”
Todd Staples, president of the Texas Oil and Gas Association, this month said no one is investing more than U.S. oil and gas companies to minimize flaring through carbon capture technology and automation.
“The fact that 99.5 percent of gas is being captured speaks volumes to the commitment of this industry,” Staples said. “Any new tax will hurt this product that is responsible for the cleanest air in the nation.”
Leyden acknowledged there will be situations when flaring is inevitable to maintain worker health and safety, but reducing flaring to as close to zero ought to be the ultimate goal, he said. In Norway, which has restrictive flaring regulations, oil and gas companies flared just 0.2 percent of their natural gas production in 2019. Some of the top-performing U.S. oil and gas companies flare just 0.4 percent of their natural gas production, Rystad said.
“0.4 percent is not the ultimate best that can be done,” Leyden said. “We’re moving toward a world pretty quickly where flaring and methane is not going to be tolerated. If you’re not doing this, you’re not going to have access to capital and you’re not going to be competitive. This is the price of admission for being a responsible operator.”