In U.S.’s hottest drilling spot, vol­umes of gas go up in smoke

With con­sent from Texas reg­u­la­tors, pro­duc­ers flare freely in the state’s Per­mian Basin

The Peterborough Examiner - - Business - RE­BECCA ELLIOTT

In Amer­ica’s busiest oil field, roughly $1 mil­lion worth of nat­u­ral gas goes to waste each day.

Shale drillers in the Per­mian Basin of Texas and New Mex­ico say they have no way to move the gas—a byprod­uct of oil drilling— to mar­ket be­cause there aren’t enough nat­u­ral-gas pipe­lines. In­stead, they are get­ting rid of the ex­cess gas by set­ting it on fire, a prac­tice known as flar­ing.

Com­pa­nies flare about 3% of the gas they ex­tract in the Per­mian. But pro­duc­tion in the basin is so high that the vol­ume of gas burned ev­ery day would be large enough to sup­ply the daily needs of states such as Mon­tana or New Hamp­shire, by some es­ti­mates. The flar­ing also pro­duces green­house gas emis­sions equiv­a­lent to 2 mil­lion cars.

Shale drillers are flar­ing with the con­sent of state reg­u­la­tors. Un­til more nat­u­ral-gas pipe­lines and stor­age fa­cil­i­ties are added, the only al­ter­na­tive to burn­ing gas would be to re­duce some of the area’s lu­cra­tive oil pro­duc­tion, which has su­per­charged the re­gion’s econ­omy and boosted over­all U.S. crude out­put to a record of around 11 mil­lion bar­rels a day.

Texas of­fi­cials say they ex­pect the is­sue to re­solve it­self even­tu­ally once the nec­es­sary in­fra­struc­ture is built.

“There’s noth­ing for us to do,” said Ryan Sit­ton, a mem­ber of the Texas Rail­road Com­mis­sion, which reg­u­lates oil and gas op­er­a­tions.

“If gas be­comes a waste prod­uct, peo­ple will flare it.”

The Wall Street Jour­nal re­viewed data on the more than 20,000 per­mit re­quests that com­pa­nies sub­mit­ted to the Texas Rail­road Com­mis­sion to flare gas over the past five years. None was de­nied as of early Au­gust, the data show. Of­fi­cials con­firmed the fig­ures were ac­cu­rate.

A sim­i­lar prob­lem sur­faced in an­other shale drilling hot spot, North Dakota, ear­lier this decade, prompt­ing the state to tighten reg­u­la­tions.

The flar­ing is poised to worsen in com­ing years as com­pa­nies rush in to pump more oil from the Per­mian. While oil fetches about $69 a bar­rel, nat­u­ral gas cur­rently sells for less than $3 a mil­lion Bri­tish ther­mal units and has be­come a largely un­wanted side ef­fect of the re­gion’s oil boom.

Per­mian daily pro­duc­tion has soared to 3.3 mil­lion bar­rels of oil and nearly 11 bil­lion cu­bic feet of nat­u­ral gas in June, ac­cord­ing to

the En­ergy In­for­ma­tion Ad­min­is­tra­tion.

With it, so has flar­ing, which topped 320 mil­lion cu­bic feet a day in the sec­ond quar­ter, ac­cord­ing to an anal­y­sis of public data com­piled by Rys­tad En­ergy, an en­ergy con­sult­ing and re­search firm. The data com­bine the gas that was burned or re­leased di­rectly into the at­mos­phere—a prac­tice known as vent­ing, which is worse for the en­vi­ron­ment than flar­ing.

But flar­ing still pro­duces car­bon diox­ide, a green­house gas, and causes air pol­lu­tion. The re­sult­ing green­house gas emis­sions from burn­ing that much gas in the Per­mian are equiv­a­lent to the ex­haust from about 2 mil­lion cars, ac­cord­ing to es­ti­mates from the World Bank and En­vi­ron­men­tal Pro­tec­tion Agency.

An anal­y­sis of de­mand data from the EIA also shows that the gas burned in the Per­mian ev­ery day ex­ceeds the daily con­sump­tion of many small states.

As Per­mian oil out­put con­tin­ues to grow, Rys­tad En­ergy projects flar­ing will more than dou­ble in the next year, and won’t sub­stan­tially drop un­til at least late 2019, when new gas pipe­lines are set to start op­er­at­ing.

In Texas, of­fi­cials have thus far re­sponded by per­mit­ting com­pa­nies to flare as much as they want. New Mex­ico reg­u­la­tors, who in 2015 be­gan re­quir­ing com­pa­nies to spell out how much they are flar­ing, also have al­lowed com­pa­nies to con­tinue burn­ing the gas. New Mex­ico of­fi­cials didn’t re­spond to ques­tions about the re­cent uptick in flar­ing.

Without stricter reg­u­la­tions, “the eco­nomic driver to do some­thing with it is not strong,” said Mar­tyn How­ells, a con­sul­tant for the World Bank’s Global Gas Flar­ing Re­duc­tion Part­ner­ship, an ef­fort to curb flar­ing world­wide.

Royal Dutch Shell PLC, which is a mem­ber of the World Bank’s ini­tia­tive and has pledged to elim­i­nate “rou­tine” flar­ing by 2030, flared at among the high­est rates of large Per­mian gas pro­duc­ers in the first half of the year. The com­pany burned about 7% of the gas it pro­duced in the basin dur­ing the sec­ond quar­ter, down from 9% dur­ing the first quar­ter, ac­cord­ing to Rys­tad En­ergy.

Amir Gerges, Shell’s gen­eral man­ager for the Per­mian, said pro­duc­tion had out­paced the con­struc­tion of smaller pipe­lines that trans­port gas away from wells. Re­cent in­fra­struc­ture in­vest­ments, among other op­er­a­tional changes, helped lower the com­pany’s flar­ing rate to 2.5% in July, he said.

Re­duc­ing flar­ing is “not just good for the en­vi­ron­ment. It’s also ex­tremely good busi­ness,” Mr. Gerges said.

WPX En­ergy Inc., an Ok­la­homa-based driller, flared 10% of the Per­mian gas it pro­duced in the first quar­ter, a rate spokesman Kelly Swan called “un­ac­cept­able.”

“That’s not the way we want to op­er­ate,” he said, at­tribut­ing the flar­ing to in­suf­fi­cient in­fra­struc­ture near wells to cap­ture the gas.

The com­pany, whose rate of flar­ing dropped to 6% in the sec­ond quar­ter, has been build­ing a fa­cil­ity to cap­ture gas from nearby op­er­a­tions. The pro­cess­ing plant is set to be­gin op­er­at­ing this month and con­nects to pipe­lines leav­ing the Per­mian, Mr. Swan said.

Flares light up the sky in south­west Texas’ Reeves County, flames vis­i­ble for miles as op­er­a­tors there burn more gas than any­where else in the Per­mian.

Venetta Seals, mayor of the town of Pe­cos, which de­pends heav­ily on oil and gas eco­nom­i­cally, said she views the com­bus­tion as in­evitable.

“What other op­tions are there?” she asked. “Without the in­fra­struc­ture be­ing here, the only other so­lu­tion is what, they stop drilling? That would cer­tainly turn things up­side down out here if that were to stop hap­pen­ing.”

JIM WIL­SON THE NEW YORK TIMES FILE PHOTO

The only al­ter­na­tive to burn­ing gas right now is to re­duce some of the area’s lu­cra­tive oil pro­duc­tion.

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