Gas flaring in the largest U.S. shale plays has been in the spotlight since the shale revolution started. Pressure from society and ESG investors have recently turned up the heat on the oil and gas industry to reduce flaring and eliminate routine flaring as a step toward contributing to emissions reduction.
The spotlight in the United States is on the biggest shale basin, the Permian, where flaring soared to record highs while production was surging in 2019, and fell in 2020 to the lowest since the shale boom started, due to lower oil and gas drilling and fewer new wells put into production.
Most of the spotlight has been on the larger portion of the Permian in Texas, but neighboring New Mexico, home to part of the Delaware basin—one of the most active and prolific basins in the Permian—has also had to grapple with the flaring issue.
New Mexico’s Democratic Governor Michelle Lujan Grisham said in the State of the State Address last week:
“This year we’ll enact the country’s toughest methane & air pollutant rules in the oil & gas industry, finally cracking down on waste & pollution in a way that is not punitive but innovative, capturing harmful emissions & creating more revenue for our state & for our schools.”
New Mexico’s Oil Conservation Commission held in January hearings on a proposed new rule on flaring that would require 98 percent of the gas to be captured by the end of 2026.
The environmental toll of burning natural gas is immediately obvious—flaring generates carbon dioxide, while simple gas venting releases methane—a much more harmful greenhouse gas than CO2.
But there’s also a financial loss from flaring—if gas weren’t ‘wasted’, it would have contributed to more state revenues from oil and gas. Related: This Year Will Define The Next Decade In The Energy Industry
In New Mexico’s case, state revenue from oil and natural gas production totaled $2.8 billion in fiscal year 2020, representing 33.5 percent of total state spending, according to data from nonpartisan New Mexico Tax Research Institute cited by the New Mexico Oil & Gas Association.
Research from the Environmental Defense Fund (EDF) showed in November that flaring, venting, and leaks lead to the loss of at least $271 million worth of natural gas in New Mexico every year. The state is losing around $43 million in state tax and royalty revenue annually—money that would otherwise fund schools, infrastructure, and other public services, according to the research.
Burning gas associated with oil production is therefore not only producers burning potential revenues, but states receiving less revenue from oil and gas production.
After record flaring volumes in 2019, the share of gas flaring to total production in the Permian dropped in 2020 to the lowest level since the shale revolution started, recent research by Rystad Energy showed. This plunge in gas flaring was mostly the result of reduced production because of the crash in demand and prices in the pandemic.
However, there is “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,” Rystad said.
The biggest firms in oil and gas have vowed to reduce flaring in the ongoing industry drive to prove that the sector still has a ‘social license’ to operate while everyone talks about the energy transition and the climate crisis.
ExxonMobil said in December that it would aim to reduce flaring intensity by 35-45 percent by 2025 and eliminate routine flaring by 2030. Pioneer Natural Resources set a goal to limit flaring intensity to less than 1 percent of natural gas produced, and end routine flaring by 2030, with the aspiration to accomplish this by 2025.
Gas flaring has both environmental and financial costs to the industry, society, and state public services. The amount of flared gas in the United States in 2018 cost as much as $2 million every day worth of wasted natural gas, petroleum engineer Ian Palmer wrote in Forbes, noting that reducing or banning flaring should be in everyone’s interest.
With the proposed rule on gas flaring, New Mexico could generate more oil and gas revenues, especially at a time when President Joe Biden’s moratorium on new oil and gas drilling permits on federal lands is sending shockwaves through the state, where more than half of oil and gas production comes from federal land.
By Tsvetana Paraskova for Oilprice.com
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