Profit And Loss From Flaring Of Natural Gas In Permian Basin Wells Of New Mexico
Originally published on Forbes.com on January 29, 2021
SOURCE: CORBIS VIA GETTY IMAGES
Flames from a flaring pit near a well in the Bakken Oil Field.
The Delaware basin, a part of the Permian basin, contributes massively to New Mexico’s oil and gas production. Yet it also contributes to problems – and one is flaring natural gas usually, but not always, at the top of wells.
This continues a series on the Delaware basin that started with an assessment of the premier oil and gas basin in the USA, and one of the best in the world. The journey is fascinating because of the tough-rock geology, the new technology needed to make wells flow, and the problems that are raising political arguments, right now, at both state and federal level.
On a map, the Delaware is actually the western end of the Permian basin, but it straddles both New Mexico and Texas (see map).
What is the issue with flaring?
Flaring refers to natural gas that has no pipeline so the gas is released to the atmosphere and burned because the operator can make a better profit by continuing to sell the oil that comes up the well along with the gas. Now flaring is actually wasting gas, almost like burning money, and that eats a little into the oil sale profits. But still, a profit is a profit, and a profit means good business – usually.
But there’s another angle here. The natural gas is usually burned to CO2 as its released, and this contributes to global warming. Worse, if it’s not burned but just released as methane (natural gas is essentially methane) this is called venting. This is a 21 times bigger problem for global warming because unburned methane has 21 times the warming effect of CO2.
So there it is. Another one of those dilemmas confronting the oil and gas industry – and other people. What’s more important – profits and jobs or future (and present) negative effects of global warming and climate change? In this article we take a look at both sides of the issue.
Methane emissions from flaring and venting, in right panel of Figure 1, have increased markedly in the USA since the start of the shale revolution in 2003. But it’s usually been less than 1 percent of total natural gas production shown in left panel (except in 2018).
It should be in everyone’s interest to ban flaring because on average 1% of gas produced across the US is flared (Figure 1) – amounting to 1 billion cubic feet per day (Bcfd) in 2018. At $2 per thousand cfd (Mcfd), this amounts to a wasted $2 million per day, as well as a significant increase in GHG emissions.
Figure 1. Total natural gas production in left panel, and methane emissions from flaring and … [+]
Wasted gas and money burned.
North Dakota and Texas contribute most to the spike of flaring and venting in 2018. North Dakota has the Bakken, a mostly oil play that flowed 1.5 MMbopd (million barrels of oil per day) at its peak in 2019. Texas has two main oil plays – the Eagle Ford in South Texas and the Permian in West Texas. All these plays started up around 2008 due to the new shale technology of multiply-fracked long horizontal wells.
The spike in Figure 1 was in part due to getting the cart before the horse. Wells were drilled in a hurry and oil from the separator was connected into an oil pipeline and flowed away to sales. But there was no pipeline for the gas that came up with the oil. To keep the oil flowing up the well you have to get rid of the gas. The simplest method is to flare the gas. It is burning money, but it’s not much money because the price of gas was so low (less than $2/Mcf). Companies could make much more money by selling oil at $50 /barrel or more.
Economic losses in New Mexico:
According to EDF (Environmental Defense Fund) in November 2020, methane losses due to flaring, venting and leakage amount to at least $271 million worth of natural gas in New Mexico every year. As a result, New Mexico is losing roughly $43 million in state tax and royalty revenue annually – money that would otherwise fund schools, infrastructure and other public services.
Flaring in the Delaware basin.
The Delaware basin was absolutely booming in oil in 2018 and 2019, producing over 1 MMbopd in the New Mexico section in each of those two years. Pictures from a NOAA satellite show hundreds, or maybe more, of wells flaring at any one time.
The Delaware basin in 2019 produced a lot of gas too (see the table): close to 3 trillion cubic feet (Tcf). About 1 Tcf in New Mexico’s part, and a little more than 2 Tcf in the Texas part of the basin. Both of these exceed the San Juan basin which produced about 0.8 Tcf. It’s clear the Delaware is incredibly rich in both oil and gas.
SOURCE: JON GOLDSTEIN
Flaring volumes versus gas production volumes in Delaware basin.
The table was provided by Jon Goldstein, Director, Regulatory & Legislative Affairs, for EDF in Colorado. EDF have measured methane emissions over the USA, as well as individual states such as New Mexico and Texas. They use both satellite and ground-based measurements of methane.
The numbers in the table say that gas flaring in the Delaware was spiking also: 4.6% and 5.3% are very high values, compared with mostly less than 1% in Figure 1. The corresponding gas volumes burned and wasted are 46 Bcf and 110 Bcf in the year of 2019. Now 46 Bcf in one year is equivalent to 126 MMcfd, or twelve very good shale wells each burning 10 MMcfd.
Now one year later comes a big surprise. The flaring intensity in most of the Permian basin drops from about 5% to 1.6% in the fourth quarter of 2020 – the lowest level for eight years. The huge drop is attributed first, to stalled production of oil and gas for several months during which time the price of oil dropped to zero. And second, to operators changing their ways – most have committed to reducing flaring intensity, and about half of the 45 largest companies have lowered the rate to 1.2%.
According to Goldstein, EDF has seen flaring rates decline somewhat (due to COVID and oil price shocks leading to less drilling) but those are temporary pressures. If flaring is to decline and stay low that will take strong regulatory efforts like those that New Mexico is finalizing, he said.
PHOTO BY IAN DEXTER PALMER
Gas flaring from new-technology oil well in the San Juan basin of New Mexico.
Contribution to global warming.
The other aspect that is distressing, if you believe global warming is caused mostly by fossil fuels, is the flare gas that is burned and released to the atmosphere and adds to the greenhouse gas problem. From the table, 46 Bcf of gas flared in the New Mexico Delaware in 2019 is equivalent to 5,500 railcars of coal burned.
For the entire Delaware basin (New Mexico plus Texas) the gas flared in 2019 was 156 Bcf (see table) which is equivalent to burning almost 19,000 railcars of coal in 2019. Knowing how coal burns so dirty and how serious its global warming effect is, the numbers are a jarring reminder of the need to reduce gas flaring in the Delaware basin.
New Mexico proposes to ban flaring.
The Oil Conservation Division (OCD) regulate flaring of oil and gas wells in New Mexico. After several months, they are finalizing new rules for flaring limits.
Goldstein at EDF said the OCD proposal is to ban routine flaring, except during well completions when well operations are finalized for connecting to the pipelines. The rule will say gas cannot be flared to allow oil to flow to sales while awaiting a pipeline for gas. The state wants to set a 98% capture rule which only applies to venting/flaring.
Another 98% rule has been proposed: to combust at least 98% of natural gas being flared. This is because unburned methane has 21 time more global warming effect than burned natural gas that is essentially CO2.
What are other companies doing about flaring?
In December, Pioneer Natural Resources PXD -1.4% said they aim to reduce well flaring emissions to 1% of their total gas production. 1% is about the national average for flaring, but some wells taken over by Pioneer had a flaring intensity above 5%.
Jonah Energy in their Green River oil and gas fields manage all their methane emissions with monthly inspections, said Goldstein from EDF.
Shell and Occidental have made a commitment to World Bank to reduce flaring to zero by 2030.
An innovative solution for flaring or venting gas has emerged: a gas processing plant inside a truck called Edge LNG. The gas can be processed and liquefied within hours. The LNG can be used to power equipment at the well site or trucked away to other users.
According to the World Bank, four countries, USA, Russia, Iran and Iraq, contribute almost 50% of gas flaring across the world. And in the US, flaring rose by 23% from 2018 to 2019.
Edge LNG is a small footprint liquefying and storage scheme that is perfect to reach out to small-scale well sites not connected to a gas pipeline.
LNG is a large and growing market in the US as well as overseas. In the US, power plants, gas utility companies, and petrochemical facilities needing feedstock are willing buyers, according to Edge LNG.