Texas Producers Boost Flaring as Natural Gas Prices Tumble

Oil and gas producers in Texas have significantly increased in recent weeks the number of requests to the Railroad Commission of Texas (RRC) to allow flaring on some operations as low natural gas prices and a glut of supply present challenges to the drillers how to get rid of the unwanted gas.

RRC, the oil and gas industry regulator of Texas, approved last week as many as 21 requests from producers to be exempt from rules banning or limiting flaring, Reuters reported on Tuesday.

The U.S. natural gas benchmark, Henry Hub, has been depressed below $2.00 per million British thermal units (MMBtu) since early February, due to weak winter demand amid milder weather, record output at the end of 2023, and higher-than-average natural gas stocks. 

U.S. oil producers are not in a rush to significantly boost production despite oil prices hitting $85 earlier this month, as low natural gas prices are holding back drilling in parts of the Permian and costs have increased, analysts and industry executives told Reuters earlier this month.

As WTI crude prices moved above $80 per barrel, producers are keen to continue pumping oil. But weak natural gas prices, especially in Texas, have created a dilemma for the companies, and many would choose more flaring – if permitted – to shutting down oil-producing wells that have associated gas output, analysts say.  

So far, producers in America, where part of the natural gas is associated gas from oil drilling, are not jumping the gun. They are mindful of the investor demands for higher returns, not necessarily higher production.

Still, natural gas prices at the Waha hub in the Permian basin in Texas slumped to a negative value of -$2.00 per MMBtu earlier this month as the recent rise in oil prices prompted producers to bring drilled but uncompleted wells online.

“Natural gas is currently pricing at or below costs of production,” an executive at an exploration and production company said in comments in the latest quarterly Dallas Fed Energy Survey released at the end of March. 

By Tsvetana Paraskova for Oilprice.com

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