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New Mexico aims to curb gas venting, flaring as volumes exceed state demand

As New Mexico's oil and gas industry vents and flares a higher volume of natural gas than state residents consume, stakeholders are looking at ways to reduce methane waste. But a draft report from a state-convened advisory panel found inconsistent reporting by operators, regulatory loopholes and a lack of coordination between industry players pose challenges to that effort, and that the scope of the problem may be larger than officials estimate.

Data collected by the state Oil Conservation Division, or OCD, shows operators vented or flared 100.3 MMcf/d of natural gas in 2018, exceeding the 94.4 MMcf/d consumed by the state's 592,775 residential customers.

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On Jan. 29, New Mexico's Democratic governor, Michelle Grisham, signed an executive order directing state agencies to evaluate and implement policies that further achieve reductions in greenhouse gas pollution. As part of that effort, the state's Environment and Energy, Minerals and Natural Resources departments facilitated a series of meetings by the Methane Advisory Panel — made up of stakeholders from the oil and gas industry, environmental groups and independent experts — to document the technical and regulatory challenges surrounding methane waste.

That group found regulators may be underestimating the scope of the problem.

"Incomplete or inaccurate reporting … biases the emissions/waste estimates downwards," the report said. "We do not know the extent of such reporting noncompliance, but in the past it has been substantial, and there is no basis to conclude that the problem has been fully corrected." The authors said U.S. National Oceanic and Atmospheric Administration satellites that monitor flaring corroborate that conclusion.

The draft report, which did not provide recommendations, blamed oil production growth for the increase in the volume of natural gas that is vented or flared: "In the Permian, while almost all of the producing wells are connected to gas-gathering infrastructure, gas production growth is nonetheless overwhelming the capacity of the gathering system. … This mismatch … is being driven not by the value of gas, but the value of oil. … Even though it may be profitable for operators to make investments to capture gas, it can be even more profitable for operators to invest in further oil development instead."

Data from the U.S. Energy Information Administration show New Mexico oil production growth has outpaced that of natural gas production, and the state now produces more oil than it does natural gas on an oil-equivalent basis.

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State law requires regulators "to encourage the optimum recovery of oil and gas resources," the report notes, and current regulations generally bar flaring or venting casinghead gas — associated natural gas produced at oil wells — beginning 60 days after a well's completion. But regulators are allowed to grant an exception whenever flaring or venting "appears reasonably necessary" to "prevent undue hardships." The OCD has 10 days to grant an exemption, after which the matter is referred to the agency's director, who must hold a hearing if the applicant wishes.

"In effect, this means that to maintain the general prohibition on flaring, the director would have to hold a hearing on and make the decision to reject each individual flaring application," the report said. "This is simply untenable from an agency workload perspective, and it is no surprise that the OCD routinely grants most or almost all flaring exception applications."

The report notes that some operators are voluntarily working to limit venting and flaring. For example, some operators use mobile equipment to process byproducts into natural gas liquids, compressed natural gas, or liquefied natural gas for transport away from the production site by truck. Others are using excess natural gas production to power their operations. And some have planned pilot projects to inject excess natural gas in enhanced oil recovery projects.

"[New Mexico] electric power providers' willingness to accept distributed generation from oil and gas sites with stranded gas or limited takeaway capacity could allow the gas to be utilized to support the electrical demands of the state, thus offsetting flaring," the report said. The state's quantity of natural gas vented or flared in 2018 would supply 37.2% of power-sector natural gas demand, based on OCD and EIA data.

The report says the best way to reduce methane waste is for operators to work with midstream companies to ensure infrastructure is online to support natural gas production growth. "Gas capture plans ensure operators are working with gatherers/processors to develop solutions to get the gas to market for sales," the report said. "The best solution to flaring is always having a sales pipeline."

But data quality poses a challenge for stakeholders that wish to monitor these efforts. The report cites a "lack of guidance" from the OCD on how operators should categorize dispositions of natural gas. Examples of inconsistencies include only some operators reporting quantities of natural gas vented or flared during well testing, or relying on periodic gas-to-oil ratio tests to derive the quantity of natural gas produced instead of directly metering it.

"It is highly likely that there are inconsistencies across operators regarding whether all disposed gas is actually reported, and which disposition codes are used for which sources of gas," the report said.