For gas flaring fix, commissioner suggests OPEC over Texas

Washington — Texas natural gas flaring is rising alongside the state's record-breaking oil output, and Texas Railroad Commissioner Ryan Sitton believes something needs to be done about it.

But what remains clear, and the solution, may be on OPEC, not Texas producers, Sitton argues in a new report.

"We want to reduce flaring," Sitton said during a conference call Tuesday. "There's a lot of value in this gas long term ... the question is how do we do it."

And, Sitton argues in his report, who needs to reduce flaring remains an open question as well. "We can't look at Texas in a vacuum," he said. "If we can look at flaring intensity levels around globe... then we being to understand how can we drive things, lead things here in Texas that actually inspire lower flaring levels while not causing undue negative consequences."

Sitton, in his report, draws on flaring intensity, a metric he calculates as the relationship between production and flaring, to argue that flaring cutbacks by OPEC member countries, particularly Iran and Iraq, would have considerably more gain than reductions from operators in Texas.

"If OPEC and its member countries began to set standards for flaring intensity, then this would drive the largest global reduction in flaring with minimal impact to global oil supply," the report states.

Flaring levels, and flaring intensity, are "notably lower" in Texas than they are in much of the rest of the world, Sitton claims. A significant reduction in flaring in Texas would cause a corresponding, significant drop in oil production, he argues. This reduction in Texas would likely cause an output increase elsewhere, likely with a higher flaring intensity.

"This is critical to evaluating Texas production and future policies, since reducing flaring in Texas may cause a larger environmental impact to achieve the same amount of global energy production," the report states.

Sitton calculates that Texas' flaring intensity for 2018 was 0.09 Mcf/bbl. Iran's and Iraq's flaring intensities were more than four times higher. Saudi Arabia's flaring intensity was only 0.01 Mcf/bbl since Saudi oil fields produce very little associated gas, the report says.

The report suggests that Iran and Iraq could reduce much more flaring than Texas by cutting less oil production. The report suggests that the major buyers of Iranian and Iraqi crudes would drive these flaring reductions by demanding them as a stipulation of their purchases.

The report suggests that if Texas were to shut down the wells with the highest flaring intensity, a 200,000 Mcf/d flaring reduction would cause a 750,000 b/d to 1 million b/d decline in oil production. A 200,000 Mcf/d flaring reduction in Iraq and Iran, meanwhile, would cause a decline between 100,000 b/d to 540,000 b/d, the report says.

Colin Leyden, a senior manager, regulatory and legislative affairs, with the Environmental Defense Fund, said the report appeared to downplay the impacts of flaring in Texas and the role of the Texas Railroad Commission in regulating it.

"There's a pretty strong, underlying message in the report that things are all good out in the Permian," Leyden told S&P Global Platts Wednesday.

While oil production in Texas rose from nearly 1.2 million b/d in 2010 to over 4.4 million b/d in 2018, statewide flaring jumped from over 108,400 Mcf/d to more than 652,200 Mcf/d over the same time, according to the US Energy Information Administration's latest data.

Flaring in the Permian climbed to more than 800,000 Mcf/d in 2019, according to Rystad Energy.

Flaring has drawn criticism from not only environmentalists, but oil and gas executives who have called on Texas regulators to do more to limit it.

"Flaring is energizing environmentalists and encouraging investment funds to go 'green,' which will further constrain oil and gas investments," an oil and gas executive said in quarterly energy survey that the Dallas Federal Reserve released in late December.

According to the survey, 73% of executives said that a lack of pipeline takeaway capacity for gas was one of the main causes of this increase in flaring, while 49% cited a lack of gathering and processing capacity and 45% pointed to processing and transportation fees exceeding the value of the gas.

EDF's Leyden said Texas producers and regulators are facing more opposition to address the flaring issue. "Oil and gas companies are under increasing pressure from investors and the public to show that they can compete in a low-carbon economy," Leyden said.