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Texas kept lid on flaring in 2017, North Dakota grappled with burn-rate near 20%

Energy

Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Every Industry Is Now A Technology Industry

Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming


Texas kept lid on flaring in 2017, North Dakota grappled with burn-rate near 20%

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.

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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.

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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.

Regulatory Research Associates is an offering of S&P Global Market Intelligence.

For a full listing of past and pending rate cases, rate case statistics and upcoming events, visit the S&P Global Market Intelligence Energy Research Home Page.

For a complete, searchable listing of RRA's in-depth research and analysis, please go to the S&P Global Market Intelligence Energy Research Library.


Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.


Technology, Media & Telecom
Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Oct. 08 2018 — Both buyers and sellers of traditional linear TV advertising, not including connected TV or over-the-top video, are moving toward the adoption of programmatic trading. In 2017, Kagan estimates that $690 million or 0.9% of total linear TV spend was traded programmatically. Within the next five years, that figure is expected to climb to $9.76 billion or nearly 12% of total linear TV advertising revenue. MVPDs are forecast to trade the greatest percentage of their ad inventory programmatically in 2022 with 30% of ad revenue from programmatic trading.

Kagan defines programmatic trading as being automated and data-enhanced, not just one or the other. Trading may be through a private or open marketplace and does not have to be through an auction, which is more common in digital video advertising.

There are several issues holding participants back from programmatic trading. Unlike digital programmatic marketplaces, where there is a seemingly unending supply of ad inventory, linear TV has a finite supply. Demand for TV inventory exceeds the supply, so there is still an attitude of "If it isn't broken, don't fix it." TV ads are also bought well in advance, not immediately.

While many agencies have experimented with the programmatic trading of linear TV, not all are on board. Many of the advertisers and agencies are interacting directly with the supplier platform rather than going through a demand-side platform, or DSP, today. In their experiments, the agency needs to use separate platforms to aggregate inventory and tie it together, which is a lot of work.

The lack of inventory is one factor holding back programmatic trading. The only way it takes off is to make linear TV inventory available in some type of buyer platform that can combine the various supply platforms. It is even more complicated when the buyer wants to bring in connected TV (OTT).

Agencies do like the automation capabilities of programmatic, particularly where the process takes a lot of time. An algorithm may do better in areas such as weighting estimation, the first pass at scheduling and the negotiation process as well as postings and billings. The process of buying inventory is not difficult, but computing where a buyer will be able to find its preferred audience is. Therefore, interest in automating the planning and analysis to find an optimal audience is high.

We forecast a gradual uptake for programmatic trading with continued testing in 2018. Broadcast stations and networks, cable programmers, and MVPDs need to add more inventory to programmatic platforms before agencies begin using it in earnest. It will take time for all parties to feel comfortable transacting in a new way.

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Technology
Every Industry Is Now A Technology Industry

Highlights

And every company is now a technology company.

Sep. 28 2018 — As machine learning (ML), artificial intelligence (AI), and robotics become commonplace and enter the operations of mainstream organizations, leadership teams are finding that failure to harness and leverage AI puts them behind the competition. Repeatable tasks are carried out by bots in a fraction of the time and employees are more focused on adding value, which means companies on the forefront of technology can be more reliable, more user-friendly, and faster to market.

In this highly disruptive environment, one traditional truth of business has withstood, or has perhaps even guided, these technological advances: above all, the customer experience is king. More than ever before, businesses have effective technologies at their fingertips to quickly and effectively address customer pain points, while at the same time dramatically improving their internal operations.

At S&P Global Market Intelligence, we strive to get beyond the buzzwords and truly deliver essential insight. And second to this, we strive to adopt real operational efficiencies into our delivery that are paralleled by the workflow efficiencies we promise to our customers. To that end, we are committed to remaining on the cutting edge of emerging technologies, first through optimization, then automation.

Download a recent analysis of how we’re applying new technology like natural language processing to structure data, robotic process automation to deliver insights faster, and predictive analytics to stay ahead of the market.

You can also view this analysis in Spanish, Portuguese, Mandarin, and Japanese.

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Natural Language Processing – Part II: Stock Selection

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Natural Language Processing, Part I: Primer

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Technology, Media & Telecom
Online Video Bolstering Consumer Home Video Spend, Spearheaded By Subscription Streaming

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Sep. 20 2018 — Spending on home entertainment is rising toward levels not seen since 2004, when consumers spent $24.37 billion building massive home-video libraries of DVDs and VHS cassettes. Since then, the optical-disc market saw more than a decade of significant declines as consumers shifted to digital entertainment. By 2012, total spending on home entertainment was down to $20.13 billion, with $4.13 billion coming from online video while DVDs and Blu-ray discs accounted for $12.88 billion and multichannel PPV/VOD contributed the remaining $3.13 billion.

Fast forward to 2017 and the mix of consumer spending has changed significantly. Consumers spent a total of $22.62 billion on home entertainment from multichannel, online and disc retail/rental sources. Online spending accounted for $13.00 billion of that total while spending on discs dropped to $6.84 billion and multichannel PPV/VOD shrank to $2.79 billion.

While the data might seem like good news for traditional providers of home entertainment, a key component of the growth in digital spending is the rise of subscription video on demand. The majority of online spending is going to over-the-top services like Netflix, Hulu and Amazon Prime, which increasingly have focused on creating original programming (mainly episodic TV) rather than licensing content from Hollywood studios.

Removing subscription streaming from the consumer spending pool paints a less favorable picture for traditional content providers. In 2012, consumers spent just $1.43 billion on non-subscription online video purchase/rental, and a total of $17.44 billion excluding the SVOD component. By 2017, while consumer spending on online video overall had risen to $13.00 billion, some $10.47 of that came from streaming subscriptions versus $2.53 billion from online video purchase/rental, and total home-entertainment spending was just $12.16 billion excluding SVOD.

Spending on sell-through home video peaked in 2006 when consumers shelled out $16.53 billion for DVDs and VHS cassettes. Since then spending has declined by hundreds of millions (sometimes billions) each year. In 2017, consumers spent $6.50 billion on DVD and Blu-ray sell-through and electronic sell-through. This seems to suggest that people are becoming less and less interested in adding to their home-video libraries and are turning to the more affordable streaming options. The story is similar for the home-video rental segment, which saw consumer spending peak in 2001 at nearly $8.45 billion before dropping to $2.87 billion by the end of 2017.

This has to be a somewhat unsettling trend for the major film studios, and is likely a key factor in shifting their strategy to focus on major franchise films and low-cost genre fare. The former tend to have broad worldwide appeal and can still move enough video units to help offset their high production and distribution costs. The low-cost genre fare, on the other hand, may be more risky and not sell as well internationally, but has a fair chance to break even. If the latter films lose money, the successful franchise films typically cover the losses.

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US Online Video Outlook To Eclipse $15B In 2018

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DVD, Blu-ray Spending Down $1B-plus For 11th Year In A Row

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