Zero routine flaring policy: Texas can make it happen

During an epic 10-hour proration hearing in April, large and small producers, mineral rights groups, environmentalists and investors all called for action on flaring.

“We need to lower our own emissions now, including methane, flaring and a whole range of other things,” Bobby Tudor, an oil and gas investment banker and chairman of the influential Greater Houston Partnership, said earlier this year. “And I think there’s a role for policymakers to kind of tighten the screws in a big way.”

Likewise, RRC Chair Wayne Christian said that flaring is “not something that is going to go away when the industry recovers, unless we do something about it now.”

The heart of the problem is an upside-down incentive structure. The economics of the Permian are built around the liquids. Dry gas is often treated as waste. Over the years, many solutions have been suggested, including more pipelines and processing capacity to take gas to market. But any real investment is hard to come by when flaring costs virtually nothing.

It’s no wonder then, that since 2013 operators in Texas have burned off roughly a trillion cubic feet of natural gas — enough to meet the yearly needs of every Texas home three times over.

What’s more, EDF’s recent study found more than one in every 10 flares at Permian oil and gas sites were either unlit — venting uncombusted methane straight to the atmosphere — or only partially burning the gas. That means flaring could also be among the region’s largest sources of methane, a highly potent greenhouse gas, and a significant source of other health-damaging emissions.

Flaring may make financial sense for operators, but it shortchanges other Texans. Royalty and mineral owners — including 600,000 individual Texas households — often don’t get paid for gas that’s flared, so it was no surprise the Texas Land and Minerals Owners Association, whose members hold over 3.5 million acres of oil and gas properties, urged the commission to “avoid results that give flaring wells an unfair benefit.”

The state doesn’t collect tax on flared gas, which means less revenue for schools and roads.

Unfortunately, the Railroad Commission has fallen into the practice of handing out flaring permits and exemptions to any and all who ask. In fact, the commission has not denied any of the more than 27,000 permit applications in the last seven years.

Commissioner Christian has asked a group of oil and gas trade associations to recommend practices to reduce oilfield flaring before the next commission meeting. But any plan that doesn’t address the fundamental economics behind flaring isn’t going to solve the problem.

The Railroad Commission was created to guard the state’s natural resources against waste and mismanagement, and to protect mineral owners. Achieving that mission in the face of today’s challenges requires a longer view of the future than many producers are willing to take. The commission is going to have to once again bring the interests of land and mineral owners and the taxpaying public back into the equation.

Solutions are most effective with a concrete goal — a North Star to guide and focus attention. At their next meeting, commissioners should formally adopt the goal of ending routine flaring in Texas by 2025 and direct staff to develop recommendations for how to achieve it.

This would instantly let industry know where things are headed, while giving companies time to innovate and deliver the most efficient alternatives to burning off gas. It would also allow for a process where not just industry — but also research institutes, other experts and affected stakeholders — could be brought into the process to help develop workable solutions.

Some argue that curtailing flaring is bad for an industry already facing a massive crisis, but that’s actually a good reason to put standards in place now.

Tackling the issue now will be less disruptive, allowing producers to shift operational and investment practices as needed, so when commodity prices recover and production accelerates, we don’t see a return to flaring. Over the long run, eliminating routine flaring will create greater efficiency and reduce a highly visible source of waste and pollution.

Strong standards to reduce flaring would correct market failures and recognize the societal costs of treating natural gas as waste. These changes would reward stewardship and responsibility for the state’s resources and the environment on which all economic activity ultimately depends. Together, these are the building blocks of lasting prosperity.

A version of this piece original appeared in Shale Magazine.