Emily Pickrell, UH Energy Scholar
The meltdown of the Texas grid last week illustrated that a lack of regulation can look economically savvy – until it doesn’t. Texas has been a noisy exception to the standard policy of other states to require weatherization of its natural gas generators. The Lone Star State’s failure to do so was a contributor to the $80 billion bill – per Bloomberg News – for last week’s storm.
Yet Texas has also failed to use regulatory tools to handle another environmental issue that could have a big economic implications for the entire planet: flaring and venting off natural gas in the Permian Basin.
Flaring is a well-head technique used to dispose of excess natural gas that is produced along with oil at a well head. Shale plays like the Permian produce a lot of what is called associated gas along with the much more valuable oil. A trillion cubic feet of natural gas in the Permian Basin of West Texas has been flared since 2013, according to the U.S. Energy Information Administration
The big problem is the amount of methane in associated gas, which is a disaster in terms of its climate change impact. Methane traps at least 80 times more heat than carbon dioxide. It is responsible for 25 percent of today’s warming from human activities, according to the Environmental Defense Fund. Producers flare – or burn it – as a way to turn the methane into carbon dioxide. Yet some gas is also vented, meaning that it is released directly into the atmosphere in its much more potent form as methane.
The value of the flared and vented gas, despite its relatively low cost, is staggering: the gas released in the third quarter of 2019 alone had a value of more than $500 million.
While other oil-producing states – think New Mexico, Colorado, North Dakota – have established strict flaring standards, Texas regulators continue to allow the industry to mostly control the conversation.
“The missing link is regulation – no one is forcing these companies to do it, so everyone dips to the lowest common denominator,” said Ramanan Krishnamoorti, the head of UH Energy. “In the absence of regulation there is an economic disincentive to do anything, and the simplest thing to do is to burn it.”
Initially, one of the limitations in selling the associated gas was that the pipeline infrastructure was missing to take this gas to where it could be sold. Indeed, development of the Permian has been nothing short of transformative, outpacing its supporting infrastructure: The Permian Basin increased its oil production from 1 million barrels a day in 2010 to nearly 5 million barrels a day in January 2020.
“The thing to remember about the flaring in the Permian Basin is that it has enabled the oil production, and that has been a game changer for the country,” said Christine Ehlig-Economides, a professor of petroleum engineering at the University of Houston. “It would have been very expensive, if you had to put in the (natural gas pipeline) infrastructure from the get-go to make these wells. Had that been the case, you probably wouldn’t make the wells.”
Yet the spike in oil production has been accompanied by a growing rate of gas flared, known as ”flaring intensity.” It is measured by the ratio of flared gas volumes to gross gas produced and grew from 2.7% in January 2017 to 3.8% by the end of 2019, according to a report prepared by Rystad Energy for the Environmental Defense Fund. It’s a number that some believe is much higher because of inadequate techniques for gathering the data.
The Railroad Commission of Texas is responsible for overseeing flaring, and any operator in the Permian Basin that wants to flare gas must receive its authorization.
It has not been hard to get.
The Texas Railroad Commission has an uninterrupted record of approving every request for flaring from Permian Basin. Currently, more than 300 million cubic feet of natural gas is flared each day, with at least half of this coming from routine flaring. This number is expected to climb back to close to 400 million cubic feet per day by the end of this year, according to the Rystad Energy report. It is lower than the 500 million cubic feet per day records hit in early 2019, an improvement that is largely attributed to larger operators taking over.
Texas regulators have repeatedly shown that they prefer recommendations over mandates, and in the end, expect the market to solve its own problems.
“I truly believe much of our state’s flaring will be eliminated as we expand our pipeline capacity and export infrastructure for LNG,” said Railroad Commission Chairman Wayne Christian, in a discussion over whether to support a permit for routine flaring of 100 percent of a company’s gas product, even though the necessary pipes were in place to move the majority of this gas to market.
“But in the meantime, I would love to hear suggestions from industry and the public on creative ways we can curb this practice and encourage using this gas for its intended purpose, powering Texas,” Christian said as the permit was approved.
Flaring opponents are pressuring Texas regulators to take steps to eliminate routine flaring within five years. They argue that without these kinds of bright lines, some companies will just continue to kick the can further down the road as long as possible.
Indeed, many companies are looking to reduce routine flaring. Large oil and gas companies such as Chevron
There are technological proposals floating around to help reduce the amount of flaring: one involves going after the “zero-cost” flaring solutions, which Rystad Energy estimates could reduce emissions by nearly 100 million cubic feet per day. Another proposal involves mandating gas capture targets, which could be achieved through existing gas capture technology. For unexpected flaring or venting, robots and drone technology can and is being used to detect leaks.
Setting a gas capture requirement of 98% by 2025 would largely eliminate routine flaring and cut event-driven flaring by about a quarter, according to the report.
Yet companies like Chevron say the best solution for flaring is to not do it.
It has avoided routine flaring by planning in advance for how it will get that gas to market and making sure its supply chain to do so is reliable.
“Chevron says that it is a waste of an economic resource and believe they have the responsibility, as a prudent operator, to mitigate the risk that flaring poses, ”said Jennifer Stewart, the author of the GaffneyCline report and a vice president at Avitas, a subsidiary of Baker Hughes
Occidental has become the first U.S. producer to publicly support a World Bank initiative for Zero Routine Flaring by 2030. This 2030 deadline for phasing out routine flaring is backed by an oil and gas industry group, the Texas Methane and Flaring Coalition.
Others are saying that 2025 is more reasonable, considering the magnitude methane’s role in speeding up climate change.
“The problem with that statement is that it doesn’t commit to any support for actual policy to ensure that the actual zero flaring is achieved,” said Colin Leyden, who has led research on flaring in the Permian Basin as the director of legislative and regulatory affairs at the Environmental Defense Fund. “The World Bank Initiative incorporates the fact that you are dealing with places like North Africa and the Middle East, with limited infrastructure and very little regulatory capacity. In Texas, we have 100-year-old oil and gas fields. Putting this off until 2030 lacks ambition.”
It also could put Texas in a weaker position when it comes time to look for investors and new markets for its oil and gas.
“The Texas way of allowing industry to have their way is not where the rest of the world is moving,” Leyden said. “We have seen contracts for LNG being canceled for Permian gas, with countries like France specifically citing the amount of emissions coming out of Texas. It has implications for the rest of the world.”
Emily Pickrell is a veteran energy reporter, with more than 12 years of experience covering everything from oil fields to industrial water policy to the latest on Mexican climate change laws. Emily has reported on energy issues from around the U.S., Mexico and the United Kingdom. Prior to journalism, Emily worked as a policy analyst for the U.S. Government Accountability Office and as an auditor for the international aid organization, CARE.
UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.