Natural gas flaring in the upstream oil and gas industry is common, though its use is primarily intended to be short term
The practice of flaring is generally transitory during drilling and completion of new wells and during the service, construction and safety procedures that require gas purges of well heads and processing equipment. It is also utilized to destroy hazardous gases such as hydrogen sulfide.
In the long term, less desirable instances of flaring may arise when the main production target is oil — associated gas may be considered a waste product in such cases — and takeaway capacity for associated natural gas is lacking. These circumstances are more common in some other countries, including Russia, which is notable for its high level of ongoing gas flaring from many oil-producing regions due primarily to a lack of infrastructure to process and transport the associated gas. The construction and maintenance of gas infrastructure may be considered too expensive when the distance to demand centers is high, resulting in chronic gas flaring to address the abundant natural gas.
Texas kept lid on flaring in 2017, while North Dakota grappled with burn rate near 20%
Upstream flaring in the U.S. is generally short-lived and motivated by safety measures or drilling and completion operations. However, in some circumstances, longer-term flaring may be requested by producers, and allowed by statute or exempted by regulators, as a way to address excess gas under conditions where gas takeaway infrastructure is absent or inadequate and will be so for some time.
North Dakota has experienced an environment of insufficient gas infrastructure in the Williston Basin and Bakken Shale for several years. In 2011, nearly 60% of North Dakota's natural gas production was flared due to a severe deficit in takeaway capacity for gas. In the years since, processing and transportation infrastructure has expanded, however, it still remains inadequate to fully address associated gas production in several oil-production zones. Legislation has been enacted to compel producers to reduce natural gas flaring; the additional regulatory oversight coupled with infrastructure expansion has helped decrease flaring to roughly 20% of total production in 2017, according to Energy Information Administration, or EIA, data. North Dakota officials expect flaring will fall below 15% of total gas production by 2020 as a result of the legislation and expanding infrastructure.
Considering the swift expansion of oil-targeted development in Texas shale basins during the last few years, industry observers have ventured that Texas might capitulate and allow natural gas flaring for reasons other than the present exemptions for short-term safety and well-completion procedures. Permits for combustion of excess gas could be on the table under some circumstances, such as when takeaway infrastructure is inadequate and new capacity is years away from being commissioned. However, we expect such an arrangement would be sparingly applied. In 2017, flared and vented gas was reported to be only 1.6% of the total Texas gas production, only incrementally higher than the 1.4% level in 2016 according to EIA data. Whether these relatively low levels of flaring will be maintained through 2018 is questionable, considering the much higher levels of oil and gas production this year compared to 2017 and the struggle by midstream companies to keep pace with upstream development.
Safety and operational procedures warrant gas flaring in some cases under present technology
Gas may be flared as a safety procedure to inactivate hazardous concentrations of hydrogen sulfide to prevent injury to workers and avert direct emission of harmful gases into the atmosphere. Onsite combustion may be deemed necessary by producers when wells are freshly drilled or completed and infrastructure to process hydrogen sulfide and transport gas is unavailable. During well completion, natural gas and other volatile compounds must be evacuated from the casing head before procedures, including hydraulic fracturing, are undertaken. The evacuated gas is generally flared rather than vented unburned to the atmosphere.
Long-term gas flaring is largely frowned upon in most U.S. states
Although gas flaring may be considered pragmatic by some producers when takeaway capacity is insufficient for the ubiquitous associated gas present in oil shale wells, it is generally not encouraged by most states, and many producers oppose it themselves considering the waste of resources and environmental implications. Associated gas is especially abundant in most oil-targeted developments in shale basins such as the Permian, though oil produced from conventional formations may also contain a substantial level of associated gas. As mentioned in previous articles, the Permian Basin, especially the Delaware sub-basin, which is the center of unconventional development, is presently challenged by a pronounced shortfall in takeaway capacity for the considerable level of associated gas produced from oil-targeted wells. The shortfall will not be alleviated anytime soon, given the time and financing required to build the substantial level of long-haul capacity that is required.
Natural gas production and venting/flaring activity in Texas as compared to selected U.S. states
The Railroad Commission of Texas, or RRC, the body tasked with regulating the oil and gas industry statewide, has the authority to issue administrative exceptions to allow long-term flaring of natural gas. Whether the commission would allow expansion of flaring to address excess gas during the time it takes for processing facilities and transportation networks to be built has been debated by many industry observers and analysts. The Texas statewide rule 32, as summarized in the section below, specifically bans flaring for the purpose of destroying large volumes of gas over an extended period; flaring is generally intended for a specific, exempted, short-term purpose. Measurable volumes of gas are to be used for lease operations or sold for the benefit of mineral owners and the state treasury.
Oil-targeted wells in the Permian and the Eagle Ford basins contain an abundance of associated gas. Presently, there is a growing shortage of long-haul gas transportation out of the Permian Basin that is not expected to be eased until several large gas-transport projects are completed over the next several years. Though gas processing and takeaway infrastructure is constrained in some plays such as the Delaware in the Permian Basin, we do not expect this to induce the commission to widely liberalize its policies to allow for a long-term flaring exception. Inspection of 2017's and prior year's production and flaring data aggregated by the EIA highlights a slight uptick in flared gas volumes in Texas last year. In 2017, 1.6% of the total Texas natural gas production was flared, compared to 1.4% in 2016.
Whether this pattern of restraint will continue through 2018 is a central question considering the pace of drilling activity in the Permian so far this year. A short-term ceiling on the exit of new oil production in the Permian, formed by a lack of sufficient takeaway capacity for oil, has served to limit the potential for flaring of associated gas. The lack of long-haul oil transportation options has sidelined a great deal of potential new oil production from new wells until the completion of several new long-haul oil pipelines from the Permian to Gulf Coast hubs.
Summary of Texas gas flaring regulations
The RRC has been entrusted to conserve the state's natural resources. Consequently, the RRC regulates the statewide disposition of natural gas resources produced from wells and emitted from well casing heads, with the proviso that such gas be used for legal purposes. Statewide Rule 32, formally known as Texas Administrative Code, Title 16, Part 1, Chapter 3, Section 3.32, provides that gas is to be used for lease operations or sold if it may be readily measured by devices routinely used in the operations of oil wells, gas wells, gas gathering systems and gas plants. Unauthorized venting or flaring of gas by an operator would generally be considered waste under the statute.
Exemptions to Rule 32 for gas flaring or emissions are allowed for a few specific, short-term, low-volume applications including: tank vapors from crude oil storage, gas well condensate and saltwater storage tanks; fugitive emissions; amine treatment systems, glycol dehydrator flask tanks and reboiler emissions; and blowdown gas-handling equipment used during construction, maintenance or repair. Gas is also authorized for release or flaring during well-completion or re-completion operations, and gas may be purged and released from compressor cylinders or other gas-handling equipment to allow startup.
Gas releases of less than 24 hours may be vented to the atmosphere if not required to be combusted for safety reasons such as to destroy hazardous concentrations of hydrogen sulfide. All gas releases of duration greater than 24 hours are to be flared.
Gas releases allowed by rule include:
* Flaring for up to 10 days of production post-completion, recompletion in another field or workover in the same field.
* In the event of a pipeline or gas line upset, gas from a lease production facility may be released for up to 24 hours.
* Gas release from a gas-gathering system or gas plant may be flared past 24 hours if the operator demonstrates the necessity of release. The operator must file an exception request within one business day after the initial 24 hour release period.
Flaring permits for extended periods may be obtained for valid exceptions. An exception permit is allowed for 45 days and may be renewed for up to a total of 180 days. Exceptions for more than 180 days may only be obtained through a hearing, with authorization provided by an order issued by the RRC.
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