Tuesday, June 5, 2018

Bakken Redux? How Much To Flare/Burn? -- June 5, 2018

From Bloomberg: natural gas glut in Permian sparks dilemma over how much to burn.
Texas is facing a burning question that’s pitting the state’s economy against its environment, and oil drillers against each other.
With natural gas pipelines in the Permian Basin reaching 98 percent of capacity, Texas is weighing whether to keep intact or loosen strict state regulations that limit flaring, the process used by drillers to burn off excess gas pumped up along with their oil.
Now the limit for individual wells is 45 days. After that, without a rare-granted exemption, the gas must be piped away or the well must close.
Shut wells mean less revenue for companies and the state at a time when oil prices and production are surging while regional gas prices are in a tailspin. Ending or expanding the cap solves the problem. But it also gives drillers that haven’t paid for space on existing pipes a competitive edge over those that have, and could spark environmental protests.
“This is not a simple thing we’re talking about,” said Ryan Sitton of the Texas Railroad Commission, which oversees the oilfields. “It’d be a pretty big policy shift and we want to be very thoughtful about what the ramifications could be."
Sitton said he’s meeting with producers across the Permian, and hopes to have a decision within six months, when he believes the dilemma will come to a head.
Multiple gas pipelines criss-cross the Permian, with a total capacity of 8.1 billion cubic feet a day. But as the price of crude has risen, so has production, growing 25 percent in the last year. The gas associated with that boom has filled up all but two percent of pipeline capacity as of the end of April, according to RBN Energy LLC, and Rystad Energy AS suggests oil output may grow 10 percent more by the end of 2018.
Natural gas prices in the Permian, meanwhile, are the cheapest in the nation.
Last week (or the week before, I forget), policy planners from the Permian visited North Dakota to talk about how the latter state handled the boom. One wonders if flaring was on the agenda. So far it looks North Dakota has threaded the needle. 

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