• 4 minutes Trump will meet with executives in the energy industry to discuss the impact of COVID-19
  • 8 minutes Charts of COVID-19 Fatality Rate by Age and Sex
  • 11 minutes Why Trump Is Right to Re-Open the Economy
  • 13 minutes Its going to be an oil bloodbath
  • 6 hours While China was covering up Covid-19 it went on an international buying spree for ventilators and masks. From Jan 7th until the end of February China bought 2.2 Billion masks !
  • 1 hour Ten days ago Trump sent New York Hydroxychloroquine. Being administered to infected. Covid deaths dropped last few days. Fewer on ventilators. Hydroxychloroquine "Cause and Effect" ?
  • 36 mins US Shale Resilience: Oil Industry Experts Say Shale Will Rise Again
  • 11 hours China Takes Axe To Alternative Energy Funding, Slashing Subsidies For Solar And Wind
  • 8 hours Real Death Toll In CCP Virus May Be 12X Official Toll
  • 1 hour Which producers will shut in first?
  • 9 hours Marine based energy generation
  • 13 hours Today 127 new cases in US, 99 in China, 778 in Italy
  • 8 hours What If ‘We’d Adopted A More Conventional Response To This Epidemic?’
  • 9 hours How to Create a Pandemic
  • 10 hours Apple to Bypass Internet and Beam Directly to Phones
  • 1 day TRUMP pushing Hydroxychloroquine + Zpak therapy forward despite FDA conservative approach. As he reasons, "What have we got to lose ?"
Alt Text

Oil Market Data Is About To Get Very Ugly

As the COVID-19 pandemic continues…

Alt Text

Demand Destruction Will Decimate Oil Prices

The long-term ramifications of the…

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

The Permian Has A Natural Gas Problem

Analysts continue to focus on the surging oil production in the Permian and looming takeaway capacity bottlenecks that could slow down the oil growth in the biggest U.S. shale play.

But constraints have also emerged in natural gas takeaway infrastructure, with pipelines nearly full and natural gas prices in West Texas diving on oversupply.

Pipelines will not be able to handle all the excess associated gas from the soaring oil production, so the Railroad Commission of Texas is currently considering whether to keep the strict gas flaring limits or to loosen them.

The Commission issues flare permits for 45 days at a time, for a maximum limit of 180 days.

Currently, the natural gas pipelines in the Permian are 98 percent full, according to Bloomberg estimates.

The Commission that oversees Texas’s oil fields hopes to reach a decision on whether to loosen flaring regulations in six months when the bottlenecks may reach a critical point, Texas Railroad Commissioner Ryan Sitton told Bloomberg.

But the regulatory body faces a tough dilemma in tweaking gas flaring regulations.

On the one hand, if the Commission keeps the flaring limits in tact, some oil producers may be forced to shut wells because the limit for individual oil well flaring is a maximum of 45 days—after that drillers must either pipe the gas or shut the well. Shut wells in Texas would not only hurt the oil producers, but it will also result in lower revenues for the state of Texas. Related: OPEC’s Dilemma: Demand Destruction Or Production Boost

On the other hand, if flaring limits were to be loosened, it may worsen air quality and increase environmental protests. Expanding flaring caps would pit the oil producers in the Permian who have paid in advance to secure natural gas takeaway capacity on pipelines against those who have not. Drillers who have not secured a spot on the last remaining pipeline capacity would have advantage over those who have, in case flaring is expanded.

The Railroad Commission of Texas is concerned that if it were to loosen flaring limits, it would punish the companies that have already paid for what little capacity is left on the existing pipelines, Sitton told Bloomberg.

“How do we do something that is fair and equitable for all producers so that we are not having an artificial market impact?” Sitton noted.

Centennial Resource Development, whose chairman and CEO is Mark Papa, has paid to secure pipeline takeaway capacity, for example.

“Since the beginning of last year it has been our goal that we ensure our crude oil production will not be curtailed or shut in due to potential gas constraints. Additionally, we are operating under the assumption that the Texas Railroad Commission will not allow us or the industry to flare gas for an extended period when takeaway capacity is full. Therefore, Centennial has put several transportation service agreements in place in order to ensure delivery of its natural gas to market,” Centennial’s chief operating officer Sean Smith said on the Q1 results conference call last month.

“With current Permian basin residue gas production at approximately 7.5 BCF a day and effective takeaway capacity closure to 8.5 BCF a day, we believe there is a significant risk of some operators would even need to flare their wet gas at the wellhead or curtail production at some point in the future,” Smith said.

Texas Railroad Commissioner Sitton also thinks that there is a possibility that oil producers could shut down wells because they would be unable to handle the gas.

“If I don’t have pipeline capacity and I can’t flare it, the only option is to shut in the well,” Sitton said in an interview with S&P Global Platts at the end of May. “And now I’m going to shut down oil production because I don’t have anything to do with my gas. That is a realistic scenario that could happen.” Related: Elon Musk Survives Attempted Coup

The other issue with more flaring is the obvious environmental concern. According to a November 2017 report by the Environmental Defense Fund, Permian operators vary significantly in their flaring practices, with the low-performing companies wasting nearly 10 percent of the associated gas they produce. A Clean Air Task Force report has ranked seven Texas Permian counties in the top 10 worst U.S. counties for asthma attacks, EDF said in its report.

If flaring limits are loosened, it could get worse.

Meanwhile, the Permian natural gas glut is depressing prices at the Waha hub in West Texas, where spot prices have plunged 49 percent so far this year, to US$2.03/MMBtu on June 1, as per Bloomberg data, compared to the spot price of the U.S. benchmark—the Henry Hub in Louisiana—at US$2.93/MMBtu.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage






Leave a comment
  • zhongmin Du on June 07 2018 said:
    Burn natural gas to waste resources is criminal. is should shut down and wait pipeline construct building.
  • Dan on June 07 2018 said:
    Shut down the wells. Most people would cut their oversupply.
  • Mitch on June 08 2018 said:
    Seeing as there isnt even spare oil pipeline capacity for about another year, whats the point of allowing more flaring? Its a loss of gas royalties... the oil will be produced eventually, and maybe not at a 10-15 dollar discount to WTI

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News