• 4 minutes Pompeo: Aramco Attacks Are An "Act Of War" By Iran
  • 7 minutes Who Really Benefits From The "Iran Attacked Saudi Arabia" Narrative?
  • 11 minutes Trump Will Win In 2020
  • 15 minutes Experts review Saudi damage photos. Say Said is need to do a lot of explaining.
  • 17 hours Ethanol is the SAVIOR of the Oil Industry, Convenience Store Industry, Automotive Supply Chain Industry and Much More!
  • 35 mins Ethanol, the Perfect Home Remedy for A Saudi Oil Fever
  • 43 mins Pepe Escobar: “How The Houthis Overturned The Chessboard”
  • 16 hours Instagram Now Banning Photos Of People At Gun Ranges, Claiming They Promote "Violence"
  • 10 hours Let's shut down dissent like The Conversation in Australia
  • 23 hours Famous Manufacturer of Anti-Ethanol Additives Proves Ethanol's Safety and Benefits
  • 1 day Collateral Damage: Saudi Disruption Leaves Canada's Biggest Refinery Vulnerable
  • 2 hours Democrats and Gun Views
  • 8 hours US and China are already in a full economic war and this battle for global hegemony is a little bit frightening
  • 1 day Iran in the world market
  • 1 day Trump Accidentally Discusses Technology Used In The Border Wall
  • 1 day One of the fire satellite pictures showed what look like the fire hit outside the main oil complex. Like it hit storage or pipeline facility. Not big deal.
Alt Text

Trump Battles To Avoid War With Iran

The investigation into who launched…

Alt Text

How New Technology Is Revolutionizing Oil & Gas

After years of lagging behind…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Permian Drillers Are Literally Burning Profit

Pipeline capacity constraints in the Permian are affecting not only surging oil production. There’s a shortage of natural gas pipelines as well, and operators across West Texas and New Mexico have been flaring natural gas at higher rates as gas production has soared together with oil production.

In the fastest-growing oil patch in the United States, surging volumes of natural gas have become a kind of a side product that drillers prefer to burn off instead of shutting in wells and missing out on monetizing the oil production gushing out in the Permian. Company executives admit that they wouldn’t flare as much gas as they do if they had a choice.

According to estimates by The Wall Street Journal, every day in the Permian companies burn around US$1 million worth of natural gas. The greenhouse gas emissions from the burning of gas are equivalent to the emissions from 2 million cars. In total, drillers in the Permian flare some 3 percent of the gas they pump alongside oil, the WSJ has estimated.

The regulator of the Texas side of the Permian fields, the Railroad Commission of Texas, has approved all 20,000 requests in the past five years from companies to flare gas, according to the WSJ review of the data, confirmed as accurate by Texas officials.

In New Mexico, regulators also allow companies to burn gas, but in 2015, they started requiring drillers to report how much gas they are flaring.

In North Dakota, the home of the Bakken shale formation, regulators stepped in years ago to limit flaring by imposing the so-called gas capture goals that progressively increase the goal to use the gas between 2014 and 2020. Current gas capture goals require drillers to capture 85 percent of gas through October 31, 2018. The goal will be lifted to 88 percent beginning November 1, 2018, and to 91 percent starting November 1, 2020. Related: Can We Expect An Oil Price Spike In November?

However, with strong oil production volumes in North Dakota this year, gas flaring exceeded the state-wide limit of 15 percent for a third consecutive month in June 2018, data by North Dakota Industrial Commission compiled by S&P Global Platts shows.

With the stricter limit on flaring from November onwards, companies may also limit their oil production in North Dakota, analysts say. There are new gas processing plants in the works, but until they come online by probably late 2019, companies may find it harder to comply with the new flaring limits.

In the Permian, Apache CEO John Christmann told Bloomberg in June: “In a perfect world, I don’t want to flare,” because you are also “burning revenue.”

While companies target mainly oil in the Permian, they don’t think that high gas flaring rates is a sustainable and acceptable business decision.

“That’s not the way we want to operate,” spokesman Kelly Swan of Oklahoma-based WPX Energy Inc told the WSJ, noting that the company flared 10 percent of its Permian gas production in Q1, and reduced the flaring rate to 6 percent in Q2. WPX Energy has been building a gas processing plant to capture the gas it produces.

The lack of enough infrastructure and pipelines in the Permian, coupled with surging production, has depressed natural gas prices at the Waha hub in the area. This year through August, prices were on track for their lowest annual average since 1999, according to Reuters calculations. The discount of Waha prices to the U.S. benchmark Henry Hub so far this year has been two times wider than last year’s discount and the widest since 2008, Thomson Reuters data shows.

Without reasonable action from the Railroad Commission of Texas, rising gas production and insufficient pipeline capacity could lead to companies flaring more gas, Colin Leyden, Senior Manager, State Regulatory & Legislative Affairs – Natural Gas at the Environmental Defense Fund, wrote in an op-ed in June. Related: The Biggest Threat To The Oil And Gas Industry

During the previous upswing in production, Permian operators in Texas flared in 2015 enough gas that would have served all of the household needs in the Permian counties of Texas for two and a half years, Leyden said.

Some companies are doing a good job to minimize flaring as much as possible, but overall, there are major gaps in the flaring practices of various Permian drillers, according to an EDF flaring report from November 2017.

Until pipeline and infrastructure capacity constraints are overcome, which analysts expect at some point in late 2019, gas flaring would be inevitable, according to Venetta Seals, the mayor of Pecos, the seat of the Reeves County in Texas.

“Without the infrastructure being here, the only other solution is what, they stop drilling?” Seals told The Journal.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • Thomas on September 04 2018 said:
    If you feel bad about the oil industries blatant disregard for the environment, by needless gas flaring, there is something you can do. Use more ethanol blended fuels!

    In the ethanol industry we are hard at work continually lowering our carbon scores. It appears the oil industry could care less.

    So, what do you want to fill your tank with, big oil environmental disregard or ethanol environmental awareness?
  • Lee James on September 05 2018 said:
    Flaring gas in such a big way is about as smart as building a wind turbine with no place for the electric power to go. But flaring is worse. Pollution from gas flaring goes somewhere. The thin atmosphere surrounding Earth registers gas flaring
  • Ben Livson on September 05 2018 said:
    I find discarding Helium equally concerning to flaring.
  • Dan on September 05 2018 said:
    He said "revenue" not " profit". Huge difference. Wait til NG hits $7 before putting in pipelines for a non consistent by product.
  • Ronald C Wagner on September 05 2018 said:
    All of the equipment to process natural gas exists in compact portable form. All they have to do is order it. They can use it themselves or transport it as CNG or LNG. No excuses! If you don't use it you should not be allowed to drill.
  • jim stack on September 05 2018 said:
    If they stopped Fracking we would not have that problem.
    With Fracking the OIL and NG all run out fast so they will move after it drops in production. I just hope it is not to late to try and save this one small planet in the entire universe.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play