Flaring, or why so much gas is going up in flames
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If you take a drive along the well-worn highways of West Texas, orange flames will punctuate your journey. Those are gas flares, and they’re lighting up the skies above West Texas oilfields like never before as drillers produce crude faster than pipes can be laid to haul the attendant natural gas away. Oil drillers say flaring is the most environmentally friendly way to get rid of excess gas they can’t sell. Environmentalists say that in many cases what flaring is friendly to is oil drillers’ profits. They think regulators in states including Texas and North Dakota should be tougher on a practice that harms air quality and contributes to climate change.
1. Why do drillers flare?
When an oil well begins to spew, less-valuable natural gas comes up alongside crude. Pipelines can capture that gas, but when they’re not available, producers often get rid of the gas so they don’t have to stop pumping oil. They do that by either igniting the gas, in the case of flaring, or releasing it directly into air, known as venting. Flaring is preferred because methane, an especially potent greenhouse gas, is burned off, though carbon dioxide is released into the air.
2. How much gas is flared?
A lot. The World Bank estimated that globally in 2018, 145 billion cubic meters of gas was flared, about as much as Central and South America use in a year. The amount is rising because of the oil boom in the U.S., which is fueled by the use of hydraulic fracturing — fracking — to unlock fuel from shale rock. Increased flaring in the U.S. is concentrated in the shale oil basins known as the Eagle Ford in Texas, the Permian in Texas and New Mexico, and the Bakken in North Dakota. Permian flaring rose about 85% last year, according to data from Oslo-based consultant Rystad Energy. The volume flared in Texas by the end of 2018 was greater than residential gas demand in the entire state.
3. What are the effects?
Gas flaring globally emits more than 350 million tons of carbon dioxide in a year, according to the World Bank. That’s the equivalent of the carbon emissions from 90 coal-fired power plants. In the U.S., flaring accounts for an estimated 9% of the greenhouse gas emissions of the oil and gas industry. In addition, the practice spews particulate matter, soot and toxins into the air that have been shown to be hazardous to humans.
4. How does the U.S. regulate flaring?
Flaring is allowed when the gas could cause a safety concern due to high pressure in a well and when pipelines aren’t in place to carry the fuel away. In either case, flaring spares drillers from having to suspend production, a costly move that can damage a reservoir’s future output. The Texas Railroad Commission, the main oil and gas regulator in the state, has never denied a request for a flaring permit. In a controversial case, it granted one Aug. 6 to Exco Resources Inc. even though the company’s wells were already connected to pipelines. Exco successfully argued that it would lose money paying to access the network.
5. Isn’t the gas worth something?
The short answer is no, not in oil-dominated basins where what matters is the ability to keep pumping black gold. In the Permian, local gas prices have gone negative multiple times this year, meaning drillers were actually paying customers to haul their gas.
6. Will more pipelines help?
Yes, when prices justify the costs of capturing the gas and transporting it to markets. A new pipeline led by Kinder Morgan Inc. is expected to reduce the pressure to flare. At the same time, pipeline projects in Texas are beginning to attract public opposition, a more common phenomenon in the northeastern U.S. Landowners along the route of another Kinder Morgan line are fighting the project in court, arguing against the company’s use of eminent domain to take private property. It’s not clear whether the legal battle will affect the project, but the challenge portends a tone shift in a historically industry-friendly state.
7. Are there alternatives to flaring?
Apart from transporting gas to markets via pipeline, oil producers can use it on-site as an energy source or reinject it underground. Both options require investments, however. Russia requires oil drillers to make use of 95% of the gas they produce, while Nigeria prohibits flaring, yet the practice is common in both places. That suggests bans may not be sufficient without incentives to curb flaring.
To contact the reporters on this story: Ryan Collins in Houston at rcollins74@bloomberg.net;Rachel Adams-Heard in Houston at radamsheard@bloomberg.net
To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Lisa Beyer
©2019 Bloomberg L.P.
OXFORD – Some of the most influential players in the global economy are spearheading the shift toward a clean, green, emissions-free world, even while key governments stand idle. Financial giants from Europe, China, Japan, the United States, Australia, and elsewhere can see the looming risks and rewards, and they are not waiting on policymakers to signal what needs to be done. By setting immediate bans on new fossil-fuel investments, labeling clean and dirty energy producers, and dumping unappealing stocks, the financial industry is redirecting huge flows of money from fossil fuels to low-carbon technology.
Such decisions can ripple across economies. Consider, for example, the split between state and private energy finance in India. According to the Delhi-based Centre for Financial Accountability, primary finance for coal-fired power plants dropped by 93% between 2017 and 2018, while finance for renewables rose by 10%. Among the loans for coal projects in 2018, most came from government-controlled financial institutions, whereas three-quarters of renewables financing came from private commercial banks.
Similarly, banks and traders in Japan are abandoning coal projects in favor of renewables, even though the government has resisted setting a phase-out date for coal-powered energy. Three Japanese coal-plant projects have been canceled or delayed this year. And at the global level, the International Energy Agency (IEA) reports that investments in coal-power plants hit a century low in 2018, while more coal generators were retired.
This trend will become more pronounced as the number of financial firms shifting from fossil fuels continues to grow. Consider the headlines since March. Norway’s sovereign wealth fund has won parliamentary approval to divest $13 billion from fossil-fuel stocks, as part of the largest fossil-fuel selloff to date. Japan’s Mitsubishi UFJ Financial Group, one of the world’s largest banks in terms of assets, ceased financing new coal-fired power projects. And Chubb became the first major US insurer to announce a ban on coal coverage, while Suncorpbecame the last Australian insurer to end coverage for new coal-mining and coal-power projects.
Moreover, the London Stock Exchange has recategorized oil and gas stocks as “non-renewable energy” and classified green-energy stocks as “renewable” instead of “alternative.” And the world’s largest investor in overseas coal projects, the Oversea-Chinese Banking Corporation, said it would end financing for coal-power plants (once it finishes two final projects in Vietnam), while China’s State Development & Investment Corporation announced plans to stop investing in new coal-fired plants and focus on new energy sources.
More broadly, the Investor Agenda for a low-carbon world has attracted 477 signatories, representing around $34 trillion in assets under management. These investors are calling on governments not just to limit rising temperatures, but also to meet the Paris climate agreement’s more difficult goal of limiting global warming to 1.5°C above pre-industrial levels.
Meanwhile, the Institute for Energy Economics and Financial Analysis has found that those who ignored climate-change warnings have already taken a financial hit. BlackRock, the world’s largest fund manager, lost around $90 billion over the last decade, three-quarters of which was due to its holdings in ExxonMobil, Chevron, Shell, and BP. And investors in General Electric, including BlackRock, lost a whopping $193 billion in the three years leading up to 2018, because the company misjudged the pace of the shift to green energy and the collapse in demand for gas turbines and thermal power stations.
Although the shift away from fossil fuels is already monumental, a potential tsunami awaits. Those divesting from fossil fuels are the early adopters who have sensed a change in wind direction and readjusted their sails. But far more needs to be done. Because those firms’ competitors have yet to take any steps toward divestment, trillions of dollars in carbon assets remain on investors’ balance sheets.
Moreover, according to the IEA, while coal investments have fallen, capital spending on oil, gas, and coal nonetheless bounced back in 2018, and investment in energy efficiency and renewables stalled. Worse, the consultancy Wood Mackenzie finds that the renewables boom has translated into only 2% of global energy demand. As matters stand, coal, oil, and gas could still supply 85% of primary energy by 2040, down only slightly from 90% today.
To complete the transition away from fossil fuels will require drilling down to the core of the global economy. It does not help that financial institutions in China funneled at least $1 billion in “green” financing to coal-related projects in the first half of this year. Companies cannot keep producing oil, gas, and internal combustion engines while gradually shifting to cleaner technologies; they need to make a clean break.
Moreover, financiers need to look beyond coal and withdraw support for all fossil fuels. Equally important, governments must set an ambitious trajectory for their economies that impels adherence to the 1.5°C limit on warming. Our current path will lead to warming of 3°C or more, which would have catastrophic consequences.
The United Nations Climate Action Summit on September 23 offers the opportunity for financial institutions and governments to do what is necessary. Secretary-General António Guterres has called for gold-standard leadership, in the form of government and private-sector commitments to slash emissions to net zero, with interim targets every five years.
Guterres’s call to action is echoed by all who have been demonstrating and striking for the same goal. Investors need to rise to the occasion, by structuring portfolios in such a way as to achieve net-zero emissions by 2050. That means pushing the companies in their portfolios to change, too, or risk being cut off and left behind. But setting long-term aspirations won’t be enough. Actionable steps for the coming months and years must accompany the commitments made today, to ensure that progress remains on track.
To that end, Mission 2020 is collecting stories of progress from across the global economy. Our 2020 Climate Progress Tracker Tool, an open-access database, is updated regularly with climate commitments by countries, businesses, cities, and others. The bigger the divestment movement grows, the harder it will be to hide in the shadows, clinging to the past.