Insight from Washington: Fate of Permian gas flaring draws heat in Texas state race

In February, after months of criticism, Texas Railroad Commissioner Ryan Sitton tried to take the state’s flaring issue head on.

“We want to reduce flaring,” Sitton told reporters at the time. He released a report on the path forward on flaring, or burning off associated natural gas during oil production, which has roughly tripled in two years in the Permian.

Sitton’s report, however, offered few solutions and conceded he was unsure about how the commission, which regulates the state’s oil and gas industry, may address the issue. Instead of recommending changes to the commission’s flaring permitting process, which has long been criticized as lax, the report pointed to the relatively high intensity of flaring in other countries, notably Iraq and Iran, arguing that Texas should not be judged in a vacuum.

“When you have the railroad commissioner… issuing that report, pointing the finger at Iraq, that’s not the best standard,”  Deborah Byers, the head of Ernst & Young’s Americas oil and gas practice, told S&P Global Platts. “You want to benchmark against best in class.”

About two weeks after Sitton released his flaring report, he lost his re-election campaign in the Texas Republican primary to Jim Wright, a newcomer to Texas state politics and the owner of an oilfield waste services company located outside Corpus Christi.

While few, if any, would argue that Sitton’s loss can be tied to flaring, the issue could be a defining one in the race to win his seat on the three-member commission in November’s general election.

Democrats focus on flaring

“There has got to be a more rigorous approval process for flaring permits,” said Chrysta Castaneda in an interview. “The state regulator needs to step up and enforce the laws that are already on the books.” Castaneda, a Dallas oil and gas attorney, got nearly 592,800 votes in the Democratic primary for Texas Railroad Commission.

Castaneda will face Roberto Alonzo, also a Dallas attorney and former state lawmaker, in a May 26 runoff election for the Democratic nomination. Alonzo got nearly 503,700 votes in the March primary. Both Castaneda and Alonzo have focused their campaigns on curbing flaring in the Permian and criticized the Texas commission’s seemingly lax enforcement of the practice has received widespread criticism.

Castaneda wants to require operators to consider alternatives to flaring, which has skyrocketed amid record-setting Permian oil output due largely to a lack of gas takeaway capacity. These alternatives include using associated gas for power generation at individual well sites, she told Platts.

Alonzo did not respond to an interview request. But in response to a questionnaire from the Fort Worth Star-Telegram, published in February, Alonzo said the commission must “take more aggressive efforts to reduce flaring and improve air quality by reviewing the permit process and reducing the number of permits being issued.”

Giving value to associated gas

Wright, the Republican who received nearly 1.02 million votes in the Republican primary to beat incumbent Sitton’s fewer than 798,200 votes, also said curbing flaring is a priority.

“There’s a lot of value in this gas long term … the question is how do we do it,” Wright said in an interview.

Rather than focusing on the permitting process, Wright said he plans to focus on a push for additional infrastructure to move associated gas out of the Permian.

“There’s no sense in putting gas out into the atmosphere, we need to get better about bringing it to market,” Wright said. “We’ve got to figure out how to make it feasible and maybe less restrictive on pipeline regulation to get it to a major transmission line.”

Like many in the industry, Wright said he was concerned that punitive limits on flaring could upend the state’s oil industry. “You can’t produce oil unless you have gas come with it,” Wright said. “There’s a balance there that we have to practice in order to keep our economy strong.”

Castaneda, however, said the idea of balance is false premise. “I just don’t buy it,” she said. “I see a sea change, even in the industry.”

In his questionnaire, Alonzo was also unconcerned about any impact on production, claiming that the oil market was “glutted” due to overproduction in Texas.

By state law, Texas operators are prohibited from flaring after a well has been online for 10 days, but operators continue to flare legally through commission-granted exception permits. A 2018 study by The Texas Tribune and the Center for Public Integrity found that the commission issued more than 6,300 Permian flaring opinions from 2016 through May 2018. The commission issued only 571 flaring permits in all of Texas from 2008 to 2010, according to the study.

Gas flaring at the wellhead in the Permian climbed to 616,590 Mcf/d in 2019, up from 462,380 Mcf/d in 2018 and 232,080 Mcf/d in 2017, according to Rystad Energy. Permian oil output averaged over 4.33 million b/d in 2019, up from nearly 3.48 million b/d in 2018 and nearly 2.48 million b/d in 2017, according to the US Energy Information Administration.

Depending on who wins the Democratic nomination in May, Castaneda and Alonzo face steep odds at winning a seat on the railroad commission. A Democrat has not won a seat on the commission in 25 years.

The outcomes of some state races, such as the commissioner's race, could hinge on this year's presidential race, as voters tend to vote down party lines. Texas has not voted for a Democratic presidential candidate since 1976, when it helped elect Jimmy Carter. Donald Trump got over 52% of the vote in Texas in 2016.