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Permalink Reply by Skip Peel - Mineral Consultant on February 6, 2021 at 10:33

One of the seeming advantages of unconventional reservoir development would be a certain knowledge of where the next wells will be drilled so that gathering systems can be extended  in concert with other preparatory surface work.  RM, do you think that the Permian long haul natural gas pipeline capacity coming online in 2021 will allow for greater field gathering volumes?  Is more volume required than what is under construction at this time?

Yes, I do recall "point - counterpoint".....back in the days of little concern for future catastrophic natural disasters caused by global warming.  :-)  I'm hoping that technological innovations help reduction efforts but in a prolonged period of depressed oil and gas prices, at little less supply seems like a good thing.  Shutting in production temporarily until take away capacity is available would eliminate much of the flaring/venting emissions.  And those royalty owners I suspect would be happy with a modestly lesser volume and a modestly higher price per barrel or mcf.  We are now into the second decade of Permian unconventional E&P rebirth.  If the industry had been prioritizing reduction of methane emissions early on, I think we would not be just starting to address the problem seriously.  Every time we delay acting on GHG emissions, we lose the effectiveness of the least disruptive mitigation measures.  Delays cost on both ends of the equation.

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Permalink Reply by Rock Man on February 6, 2021 at 10:48

IMO, the new mega gas lines (and I think that there are up to 20 taking Permian gas to Gulf Coast) should be sufficient for the time being to handle the gas production increase from Permian Basin for the most part. Especially when one considers the rapid depletion associated with these wells over short time frames.

Good operators are planning ahead when constructing facilities to have access to gas lines via centralized facilities and gathering systems. Plus pre installed line taps at key areas.

But some have not done this degree of planning.

Of course, the key is still take away capacity. As the Delaware Basin (which is very gas dominant over oil for the most part) continues to be developed ,there may be a bottleneck in the future for Permian gas gathering and processing - and the building of new mega lines to get the gas to the Gulf Coast (where it will compete with Eagle Ford, Haynesville, CVS, Bossier and other gas) may be more difficult due to new regulations and restrictions.

I live in the middle of the Kinder Hill Country pipeline construction - opposition to this was extreme and and I can only imagine how crazy it could be for the next round of possible new construction.

As for royalty owners and their paychecks - I agree that some have "matured" and should understand the issues at hand. But I do expect to hear some squawking when checks are lower due to production cutbacks.

New world coming - and only cooperation and coordination will help make transition easier

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Permalink Reply by Skip Peel - Mineral Consultant on February 6, 2021 at 11:10

I agree on cooperation and coordination.  The expected additional gas supply out of the Delaware Basin will only serve to increase the supply/demand imbalance.  It's certainly not good news for Haynesville/Bossier gas lessors.

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Permalink Reply by Skip Peel - Mineral Consultant on February 6, 2021 at 11:19

Check out the GM commercial that will run during the Super Bowl.

https://www.youtube.com/watch?v=mdsPvbSpB2Y

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Permalink Reply by Skip Peel - Mineral Consultant on February 6, 2021 at 11:26

The O&G industry should be investing in carbon capture technology in addition to reducing methane emissions in operations and facilities.  Here is an interesting example.

https://www.youtube.com/watch?v=mU91nD2iJEo

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Permalink Reply by Chad Ellis on February 6, 2021 at 15:12

Gas and oil fields are developed differently.  Gas field development is intertwined with pipeline takeaway development.  There is no other way to get the gas to market.  On the other hand, oil field development has several options to get the product (oil) out.  Primarily, it’s gathered into onsite storage tanks and trucked to a central pumping station for distribution.  It’s only the associated gas that needs a pipeline interconnect.  This is especially true with step out wells that are outside the existing infrastructure.  At these locations, flaring may be the only option.  As the field develops, both liquid and gas pipelines are installed.  As for using the gas onsite, this is very common when power is needed for compression or pump jacks.  It’s just not that much of either is needed when a well is new.  Years ago, operators commingled liquid and gas into a single pipeline.  This created some unfortunate accounting and legal troubles.  But more dangerous were the ice plugs that formed from the hydrates.  This is exasperated by the higher pressures that are common now.  The flexibility with transporting oil from location leads operators to aggressively step out to establish field edges.  The drawback is stranded gas and flaring.  

The Haynesville has a robust infrastructure that makes interconnects economical.  It is easy to stay ahead of the drilling with the pipelines if you plan correctly.  When I was with Azure pipeline(Exco), we ran our entire drilling fleet off natural gas.  We had dedicated rigs and long term contracts that allowed us to do this (you have to convert all of you engines to Natural gas).  We had our interconnects built and in place before the rig arrived.  This was pre 2016 before we all went broke.  Today, I’m only familiar with Comstock and Rockcliif in Harrison and Panola counties and they aren’t doing this.  This could be because of the short term rig contracts, or they don’t have the onsite treating apparatus to get fuel grade gas.  

To comment on your inquiry about the emissions in the Haynesville, I go back to my original statement about the Haynesville being a closed system.  The early EPA data that looked at emissions looked at our early facilities.  These were joint Cotton Valley sites that did emit because of the liquids and water that were stored in tanks venting to atmosphere.  We didn’t have the infrastructure in place that we do now.  Now, the Haynesville gas is kept separate for various reasons.  The emissions are almost non existent.  All of the major pipelines routinely use infrared to inspect for leaks on pipelines and facilities.  It’s the Cotton Valley and other liquids rich fields that I installed the VRUs and flare systems to minimize or eliminate the emissions.

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Permalink Reply by Rock Man on February 6, 2021 at 15:25

Chard, good post. Thanks for the insight

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Permalink Reply by Skip Peel - Mineral Consultant on February 6, 2021 at 15:27

Thanks for the overview, Chad.  Based upon your Haynesville details, it would seem that the operators monitoring and maintaining their infrastructure properly are in need of a good PR firm.  I doubt that is something they have considered before now.  I would like to see an aerial methane emissions survey performed statewide that included refining and chemical facilities.  Any and all facilities where significant emissions are possible. Considering how regulations may be changing in the near future, better to be prepared if not moving to get ahead of expectations.

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Permalink Reply by Chad Ellis on February 6, 2021 at 16:54

Your observation is true.  But, unfortunately there is no to little budget for PR in todays economic climate.  There are a lot of the larger pipeline companies that employ aerial infrared surveys.  They are very afraid of sharing this information due to overzealous litigation.  I don't want to get political, but during the Obama administration, we were faced with regulations that conflicted.  In order to comply with one, we were conflicted with another.  When we brought this up to the EPA they told us to either pay the lessor permitting fee or shut down.  We elected to pay $25,000 a month per facility to stay in operation.  Over the past few years, we could work with the EPA to establish an economical solution to lessen emissions without conflict with another regulation.  It's yet to be determined if the new administration will be governed by science and technology, or politics?  My instinct is that the latter is driving decision making on all sides.

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Permalink Reply by Skip Peel - Mineral Consultant on February 7, 2021 at 4:13

One of the reasons I am interested in unbiased, science-based monitoring is it to determine the extent and location of the problem emitters.  It's hard to craft a response to a problem if you don't have the facts.  I know there is a threat from climate warming and as the evidence piles up, it is potentially the greatest climate threat for man's time on earth.  That's the science that I believe and the science that was ditched by the previous administration.  We'll have to disagree on the Obama era policies.  I think the failure to fully implement the Clean Power Program was a lost opportunity for the long term adoption of natural gas as  replacement for coal fired electric generation,  Back then renewables were not a serious competitor to natural gas as a replacement.  Now we are on the verge of renewables being less expensive than natural gas fired generation.  If it were not for modest hopes regarding LNG export demand, the outlook for natural gas outside of the few areas of the country that have extremely low transportation costs to end users would not be favorable.  And when those countries now buying our LNG go electric, that will be the nail in the coffin of domestic natural gas.  With a little foresight, natural gas could have had a head start and made it hard from an economic standpoint for nascent  forms of renewable energy to compete. 

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Permalink Reply by Skip Peel - Mineral Consultant on February 7, 2021 at 13:23

FYI.  Industry "best practices" are best adopted and implemented before new, more stringent regulations are imminent.  A lesson the industry is having to learn the hard way!

Democratic state lawmakers want to tax flared, vented natural gas. Texas oil industry says no.

Madlin Mekelburg Austin American-Statesman

Environmental groups are pushing state lawmakers to impose a new tax: a 25% levy on gas that is vented or flared as part of the oil extraction process.

Currently, this byproduct of oil production is exempt from state taxes normally levied on natural gas production, as it is burned off and released into the atmosphere instead of being captured and brought to market.

Groups such as the Environmental Defense Fund and Earthworks are hoping to curb this release of greenhouse gases by making it more expensive for energy producers to flare or vent gas than it would be to invest in the necessary infrastructure to capture and transport it.

“Texas is one of the top oil and gas producing states, and as a byproduct of pulling oil out of the ground, this gas comes out — the same gas we use in our homes to cook our food,” said state Rep. Vikki Goodwin, an Austin Democrat who wrote a bill to tax flared or vented gas. “But for oil producers, they see it as a waste product. Rather than figuring out how to sell it or how to use it on-site, they’re basically just throwing it away.”

In addition to leading the nation in oil and gas production, Texas is a leader in the amount of natural gas that is vented and flared, according to the U.S. Department of Energy. In 2019, Bloomberg reported that oil producers in the Permian Basin were burning off enough gas to power every residence in the state.

The industry and its regulators have since taken steps to tamp down the practice. Several oil and gas companies and trade associations formed a coalition aimed at limiting flaring and methane emissions, and the Texas Railroad Commission, which regulates the oil and gas industry, adopted rules requiring more detailed disclosures from companies seeking flaring permits.

In light of those steps, Todd Staples, president of the Texas Oil and Gas Association, said a tax on flared or vented gas could create unnecessary burdens for companies that are already moving toward eliminating the practice. 

But environmental groups, concerned by the volume of pollutants being released into the atmosphere, say the energy industry in Texas is not moving quickly enough to make changes in the face of the growing threat of climate change.

“This is a common sense bill that needs to be passed,” said Sharon Wilson, a senior field advocate at Earthworks. “It is unnecessary to be wasting this product, and it is an intent pollutant that is having an impact not just locally, but globally.”

Different approaches

Democraticlawmakers have filed several bills on flaring and venting during this year’s legislative session, including legislation by Rep. Jon Rosenthal, D-Houston, calling on the Railroad Commission to ban routine flaring.

Rep. Jessica González, D-Dallas, filed a bill that would impose a tax on any natural gas burned off through flaring or vented into the atmosphere at the same rate as standard natural gas production: 7.5% of market value.

Goodwin’s legislation includes a higher tax rate (25%) than the proposal from González but would focus on larger producers to avoid “penalizing the smaller producers” who might be unable to afford compliance, she said.

“The largest producers are putting the greatest amount of methane into the atmosphere, so there is a threshold amount included in the bill, and under that threshold there is no tax,” she said.

“We wanted to make it a high enough amount that it would disincentivize the oil companies and make them realize there is a cost to polluting the environment,” she said. 

The tax rate mirrors the royalty the General Land Office receives from any oil and gas produced from leases on state land. This royalty typically ranges from 20% to 25%.

Any revenue generated from the tax would go toward schools, roads and the state’s Economic Stabilization Fund, often called the rainy day fund.

“But really, the primary purpose is just to make the cost of flaring high enough that oil producers will choose to sell that gas instead of releasing it,” Goodwin said. “It is not meant to be a long-term revenue source.”

Colin Leyden, director of regulatory and legislative affairs at the Environmental Defense Fund, said one reason energy producers continue to flare and vent gas is that the economics of a specific well are built around collecting oil — not the associated gas.

“You can make money from it, but it does require sometimes some investment in gathering pipelines and getting a hookup to a larger pipeline,” Leyden said. “Some operators haven’t been willing to do that before they bring the oil production online, so you end up in a situation where the operator just wants to burn the gas at the well's site.

“The Railroad Commission has been very accommodating of this for operators over the last 10 to 15 years.”

State law allows oil producers to flare natural gas during the first 10 days of drilling at a well. To flare or vent gas outside of those 10 days, producers must obtain a permit from the Railroad Commission.

Since 2011, the agency has issued more than 38,000 permits allowing for venting and flaring, and it approves virtually all applications for extensions.

Industry changes

In November, the commission changed the application process for flaring permits by requiring more specific information from applicants to justify their need for a permit.

The changes came as the agency received pushback from major industry operators, including BP and Shell. In a joint comment submitted to the agency in September, both companies called on the agency to "support an ambition of zero routine flaring in Texas."

Jim Wright, the most recently elected member of the three-person commission, called flaring “a waste of our precious resources” but said the practice must continue until other solutions are identified.

“I know the importance of crude oil production for our dependency and economy, and my fellow commissioners understand this importance as well,” Wright said in a January statement. “Flaring must be allowed until we start to require proper connections before production. To that end, we must make it economically viable to do so by identifying and encouraging new markets for our clean burning natural gas.”

Staples, a former Republican state lawmaker and agriculture commissioner, pointed to actions the Railroad Commission has taken as evidence that necessary regulatory changes are already happening and that additional legislation could create more problems than solutions.

“Adding a job-killing tax hurts the industry and, in turn, the entire state,” he said. “It works against the goal of making environmental progress because it takes away revenues that are being used toward improving our climate.”

Staples also noted that the push for new laws surrounding flaring represents a “failure to recognize the real commitment that industry exercises to continuously make progress in these areas,” including investment in the infrastructure needed to capture gas that otherwise would be flared or vented. 

“This product has value,” he said. “No one wants to capture that more than an operator and use it constructively. Efforts are constantly being made to capture that product. You’ll see that there may be peaks or spikes, but it goes back down because of the concerted effort to capture.”

But Leyden said the changes being implemented are “baby steps that really are inadequate.”

“I’m optimistic that over the coming months we can make more progress in Texas, but these pieces of legislation are an important part of that positive conversation,” he said. “It is probably not the end-all solution, but a good way to have the state and the Legislature say, ‘We’d like to see less of this practice, and the way we’re going to do that is use our authority to tax.’

“It doesn’t make sense for the state not to collect tax on this gas when they’re collecting tax on all the other gas,” he said. 

But Staples said proposals to tax flared gas are “out of step and out of taste with delivering real solutions.”

“Bills like this are very similar to imposing a tax for test-driving a car without even buying it,” Staples said. “It would discourage people from looking at new things.”

As for Leyden, his chosen metaphor demonstrating the need for a tax on flared gas was borrowed from a state lawmaker.

“I heard one representative describe it as, ‘If I’m at the gas pump, and I’m pumping gas into my car, and some spills on the ground, I still pay the tax on the gas,’ ” he said.

 

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