​‘Black Eye’ for Permian as flares burn more gas than Texans

America’s hottest oil patch is producing so much natural gas that by the end of last year producers were burning off more than enough of the fuel to meet residential demand across the whole of Texas. The phenomenon has likely only intensified since then.

Flaring is the controversial but common practice in which oil and gas drillers burn off gas that can’t be easily or efficiently captured and stored. It releases carbon dioxide and is lighting up the skies of West Texas and New Mexico as the Permian Basin undergoes a massive production boom.

Oil wells there produce gas as a byproduct, and because pipeline infrastructure hasn’t kept pace with the expansion, energy companies must sometimes choose between flaring and slowing production.

“It’s a black eye for the Permian basin,” Pioneer Natural Resources Chief Executive Officer Scott Sheffield said at Wednesday at an energy conference at Columbia University in New York. “The state, the pipeline companies and the producers -- we all need to come together to figure out a way to stop the flaring.”

The amount of gas flared in the Permian rose about 85 percent last year reaching 553 million cubic feet a day in the fourth quarter, according to data from Oslo-based consultant Rystad Energy. Local prices that are hovering near zero will remain “under stress” until more pipelines come online, Moody’s Investors Service said in a note Thursday.

There will always be a “mismatch” between the amount of gas produced and pipeline capacity, so some flaring is inevitable, according to Ryan Sitton, the head of the Railroad Commission of Texas. Despite what its name suggests, his agency oversees the oil and gas industry in the state and regulates flaring, allowing companies to burn gas for limited periods, or in times of emergency.

Some 4 billion cubic feet of pipelines are expected come online in the next year or so, which will likely reduce, but not eliminate, the need to flare, the commissioner said in an interview.

Right now, there’s about 9.5 billion feet a day of gas pipeline capacity in the basin that can reach markets that need the heating and power plant fuel, according to RS Energy Group. That’s not enough to carry the more than 13 billion cubic feet a day of gas that’s being pumped out of wells in the region.

Unsurprisingly, with such an abundance of gas but also real difficulties in getting it to consumers, prices for the fuel in Permian have been cheaper than in other parts of the U.S., and earlier this month they went negative, meaning producers had to pay customers to take their gas.

“Everything now that can reach a market is most definitely running full,” Jen Snyder, a director at RS, said in an interview Wednesday. “This market is going to be super volatile, particularly in the spring when market demand is low and things are tighter.”

The U.S. moved past Nigeria in terms of gas flaring in the recent years, though increases in Iran and Iraq have kept it in fourth place, according to World Bank data for 2017. Russia remains the biggest source, burning off almost 20 billion cubic meters that year.

© 2019 Bloomberg L.P

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