Report: Cutting Oilfield Flaring Won’t Hurt Profits

Oil companies burning off unwanted natural gas wouldn’t take much of a financial hit by doing away with the controversial practice, according to industry experts.  

An oil well site in Reeves County, Texas. (Courthouse News photo/Travis Bubenik)

(CN) — Texas regulators could virtually end the problem of wasteful oilfield flaring without dealing much of a blow to oil companies’ profits, energy analysts said in a report released Tuesday.

Across the sprawling Permian Basin oilfield that stretches from West Texas to southeast New Mexico, flaring has long been a problem for both the environment and the industry’s bottom line.

Sometimes dubbed the industry’s “black eye,” the practice involves companies burning off unwanted natural gas into the air after it comes up from wells alongside more valuable oil. The result is increased air pollution and wasted product. So-called “routine” flaring still happens daily across the oil patch, though flaring rates have dropped considerably amid the industry’s pandemic-induced bust.

In Tuesday’s report, commissioned by the advocacy group Environmental Defense Fund, analysts with the Oslo-based firm Rystad Energy found that Texas regulators could essentially eliminate routine flaring by forcing oil and gas firms to “capture” most of their excess gas with limited cost to the companies.

The EDF has for years urged officials at the Texas Railroad Commission to crack down on flaring.

The commission – which regulates fossil fuels, not railroads – did adopt some industry-backed administrative changes in November aimed at reducing flaring, but environmental groups have pushed for tougher measures. With Tuesday’s report, the EDF asked Rystad to dig into the potential costs of stricter flaring rules – specifically, forcing companies to cut flaring by 98%.

The analysis found that such a policy would largely eliminate routine flaring with minimal costs to companies, as the value of the natural gas saved from going up in flames would far outpace the costs of implementing the policy.

“This report is trying to point out that there’s money on the table here, and the cost isn’t a hurdle for policy,” Colin Leyden, an advocate with the EDF, said in an interview.

The Railroad Commission’s three elected members did not immediately respond to a request for comment on the report.

The report comes as President Joe Biden looks to crack down on climate change-causing methane emissions across the U.S. oil industry as part of his broader environmental agenda. Biden has already moved to reinstate federal rules on oilfield methane leaks that the Trump administration threw out.

Still, Leyden said Texas regulators would likely have significant power over the flaring issue even if Biden succeeds with his methane plans.

“When it comes to the amount of gas being flared, that authority has historically sat with the states,” Leyden said.

Texas regulators haven’t explicitly said they’re willing to explore tougher flaring rules, though one newly elected member of the Railroad Commission has signaled his willingness to at least not give companies blanket approvals for flaring, as has often happened in the past.

The future of the flaring debate could largely hinge on how the pandemic plays out and whether the problem resurfaces as the world’s economy gets back on track and oil production rebounds.

A separate report earlier this month from Rystad – one not commissioned by the EDF – found that certain flaring measures in the Permian Basin have dropped to their lowest levels since the early days of the nation’s fracking boom.

“We observe a clear structural shift in the industry’s attitude toward their operations’ environmental aspects, which establishes a good foundation for responsible development in 2021-2022,” the firm wrote.

If that progress continues even as oil production bounces back further, industry groups are likely to push back against any calls for tougher rules as unnecessary.

“We’re seeing increased activity in the [Permian] Basin, so far that hasn’t led to extreme increases in flaring,” Leyden said. “But I think we’re going to see over the next three to six months whether or not that holds.”

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