Massive amounts of natural gas are being burned to make way for oil production. Unless the incentives are changed, the harmful practice will become even more common in the U.S.
By Spencer Jakab
Relatively clean and flexible, natural gas has been described as “the champagne of hydrocarbons.” Lately, though, energy companies are treating it about as sparingly as a team that just won the World Series.
Tremendous quantities are intentionally burned off to make way for oil production. The problem is likely to get worse in the U.S., the number four flarer of gas behind Iran, Iraq and world-leader Russia.
It is more than an issue of waste: Flaring may be responsible for 1% of global greenhouse gas emissions according to Raymond James.
Even as more and more gas gets supercooled and shipped around the world in expensive, liquefied form, an estimated 5.1 trillion cubic feet of gas was flared world-wide in 2018, according to The World Bank—equivalent to the combined consumption of France, Germany and Belgium.
Why waste so much valuable fuel? Because it is often an unwanted byproduct of an oil well, and it isn’t worth enough to sell.
Geography determines whether it is worth something or not. For example, the big oil fields of eastern Siberia or Algeria’s Sahara desert are so far from end markets that the investment to process, gather and transport the associated gas produced would exceed its market value. In other cases, though, poor planning and regulation are as much to blame.
Riccardo Puliti,Global Director, Energy and Extractive Industries at The World Bank, notes that there is a “huge potential market” for gas in densely-populated Iraq, which is wracked by power shortages. The bank estimates that establishing a regulatory framework for selling the gas could bring $21 billion in investment to the country.
Unlike Iraq, the U.S. has a robust legal framework and enough natural gas pipelines to reach the moon. But America also has incredibly cheap gas, which encourages waste. Building more gas pipes to the Permian Basin, the center of America’s oil patch, is less of a priority than completing oil pipelines. Meanwhile, connecting them to outlying areas like the Bakken region in North Dakota is uneconomical at any price.
This results in some strange anomalies. Last year the price of gas at the Waha Hub in Texas reached negative four dollars per million British thermal units while gas in the other parts of the country was around $2.50/MMBtu. In other words, companies with natural gas on their hands in that region had to pay people to take it.
Prices would still be negative if the local regulator, the Railroad Commission of Texas, hadn’t greatly expanded the amount of gas that could be burned off. Last year a subsidiary of pipeline company Williams claimed in a lawsuit that the commission allowed a firm that could have used its pipelines to flare gas instead.
Geography causes the problem, but geology is making it worse. Shale oil wells have much steeper decline rates than conventional ones. This means that the volume of crude they produce after the first year drops sharply, but their associated gas volumes fall more gradually. The furious pace of drilling needed to keep shale oil production stable or rising results in more and more unwanted gas.
Burning gas releases carbon dioxide, but simply releasing it into the air would be worse because flammable methane is a far more potent greenhouse gas. Flaring produces other types of pollution too, says Audrey Mascarenhas, chief executive officer of Questor Technology. Questor produces machines that safely process over 99% of methane and volatile organic compounds at oil wells. It has been used widely in Colorado, which has stringent anti-flaring rules.
Even in less environmentally aware places, a lot of gas might be harnessed. For example, microturbines could generate electricity using waste gas for energy-intensive oil field equipment. Most creative are projects that use such power to run energy-intensive computers that do tasks like mining bitcoin or other calculations and then beam the results elsewhere by satellite.
“It’s easier to move data than a remote commodity,” explains Chase Lochmiller, co-founder of Crusoe Energy Systems, which runs several such computers.
Data may be the new oil, but such initiatives remain small. Proper incentives could tip the balance. For example, even as so much gas is being flared in the Permian, German utility RWE just christened a large solar facility there to help meet booming local electricity demand. While Texas is sunny, solar farms are made possible by subsidies.
So are even more expensive technologies like carbon sequestration—physically storing CO2.
Ms. Mascarenhas laments the fact that the cheapest solutions to mitigate global warming such as finding alternatives to flaring are mostly being ignored.
“We pick the hardest things first because they sound shiny and sexy.”
Few things irritate oilmen as much as taxes and red tape but, with enough gas being wasted to supply most of Western Europe, there is money to be made in finding uses for it. Forcing them to pay up for flaring gas and helping them profit from capturing it could help them do well while doing the earth a lot of good.
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