As any driver will tell you, the price of oil has reached historic highs. The price of natural gas, on the other hand, is near historic lows. The combination of these factors has energy companies doing something that might seem odd: They’re burning natural gas at well sites rather than trying to sell it.
In a practice known as flaring, more companies, especially in western states, are realizing that it is cheaper to get rid of natural gas that move it to market. The practice is especially pronounced in North Dakota, where oil companies now burn at the wellsite roughly a third of the gas produced in the state. But the trend is raising concerns among investors, environmentalists, and federal regulators.
But the trend is raising concerns among investors, environmentalists, and federal regulators.
Last week, investors representing $500 billion in assets called on oil and gas companies to stop the financially wasteful and environmentally risky practice of flaring. They also demanded that companies begin disclosing the amount of natural gas they burn off during production.
Energy companies can fetch far higher profits from selling the oil they extract. The gas that comes up with the oil is burnt off as waste rather than sold because the price of gas is so low. In many areas, pipelines and storage capacity for gas is limited, which is an added reason that it is financially imprudent to keep the gas while its market price is so low.
Emissions from flaring and venting natural gas cause air problems and increase global warming.
The practice of flaring hasn’t been used very often over the past decade or so. But it has recently become commonplace, especially in states like North Dakota and Texas, where regulations on it are lax.
Each day, more than 100 million cubic feet of natural gas is flared off nationwide, enough energy to provide a day’s heat for roughly half a million homes.
No federal rules exist on flaring but oil and gas companies are facing growing pressure to stop the practice.
This week the EPA plans to announce new rules about air pollution related to drilling and fracking. It is not clear whether they will set limits on flaring.
Investor groups, concerned about the wasted production, are applying pressure on oil and gas companies, too. They are also hoping to get in front of the issue before regulators start writing rules that will be expensive for companies to follow.
“Given the considerable controversy that already surrounds natural gas hydraulic fracturing, which has led to moratoria in places like New York State, Quebec and France, operational restrictions for shale oil are a very real risk,” the March 27 letter from investors to oil and gas comapnies says. “A lack of aggressive industry action also invites potentially inhibiting regulatory responses.”
Thirty six investors signed the letter, sent to over 20 oil drilling companies, saying they want the companies to disclose by May 1 how much gas they are flaring off and to meet with them to plan ways to tackle the problem.
The investors estimated that flared gas in North Dakota alone produced 2 million tons of carbon dioxide last year, which they said was equal to an 384,000 extra cars on the road. And despite low natural gas prices, lost revenue for the state from flaring totaled roughly $110 million last year, they added.
As the shale gas fracking boom helps drive natural gas prices further and further down, drillers are reluctant to invest in pipelines that would capture the gas. And injecting the carbon dioxide, which is a common practice in conventional oil fields, is difficult and more expensive in the less-permeable shale fields targeted by drillers today.
In North Dakota, some companies have announced they will invest $3 billion over the next three years in building pipelines and processing plants to deliver gas to midwestern states instead of burning it off.
But investors are concerned that these plans fall far short of adequately addressing the problem of flaring.
“We understand that the industry has plans to invest in additional pipeline and processing infrastructure in North Dakota to utilize natural gas,” they wrote in the letter, “but the plans announced to date appear insufficient to prevent growth in associated gas production from continuing to significantly outpace infrastructure capacity,”
There is good reason to believe the investors are right.
In North Dakota, industry officials say that the number of wells is expected to climb dramatically, from 5,000 to 48,000 over the next two decades, meaning that the impacts — both economic and environmental — from flaring are only beginning to be felt.