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Released October 12, 2023 | SUGAR LAND
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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--In the oil-rich Permian Basin, natural gas is almost more of a nuisance than a profit center. The profitability of wells and plays rises and falls only on the oil content. So when takeaway capacity for a well's associated natural gas fills up, it's often considered better to flare the gas and sell the oil than to face the only other alternative--to shut in the well's entire production.
Still, producers' growing push toward environmental responsibility has led most to cut flaring while some, including giant Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas)--have pledged to eliminate it altogether in the near future. And it has dropped steadily for several years.
In a report issued in December of 2022, Texans for Natural Gas issued a statement tallying the industry's recent flaring improvements.
The report said flaring intensity had declined in the Permian by more than 34% from 2020 to 2021. And over the same period, Texas as a whole had dropped flaring intensity by around 60%. It also noted that the Permian is far ahead of many global competitors, citing Venezuela in particular--an admittedly easy target--whose flaring rate is 2,621% higher.
But for the 12-month period ending June 30, flaring issues flared up again, according to a Bloomberg assessment. Over that time period, Bloomberg says Permian producers flared 97 billion cubic feet of natural gas--about one day's worth of the fuel for the entire U.S.
While headlines are blaming environmental, social and governance (ESG) avoidance, the story is more complex, says a report from East Daley Analytics and Validere, which was released in May. It points out that a combination of pipeline traffic jams and increasing rig counts and production are at the heart of the rise and takes a stab at predicting future takeaway issues.
The study considers several possible market scenarios. In the base case, it said, "Excess gas production (gas supply exceeding local demand and effective pipeline takeaway capacity) averages 200 million cubic feet per day (MMcf/d) over 17 months and peaks at ~500 MMcf/d in May 2024.
If Permian rig counts are higher than expected or if new pipelines are delayed, it gets worse. The report says, "Under any future scenario, the expected start of the 2.5-Bcf/d (billion cubic feet per day) Matterhorn Express Pipeline in mid-2024 will be critical to re-aligning the gas supply chain." Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas Pipelines Project Database can click here for the related project reports.
"Compressor expansions planned on the Permian Highway and Whistler pipelines in the back half of 4Q23 will also add 1 Bcf/d to help alleviate the bottleneck," according to the report. Subscribers can click here for projects tied to the Permian Highway expansion and click here for those tied to the Whistler Pipeline Capacity Expansion.
Indeed, says Suzie Boyd, founder and president of midstream consultant firm Caballo Loco, Whistler Pipeline owner WhiteWater Midstream (Austin, Texas) is adding compression and other updates to boost its capacity by 500 MMcf/d of capacity, improvements that are expected to come online this month.
But pipeline constraints are not just about the trunklines, they're also in the gathering systems, Boyd said, which are like capillaries to the human body's arteries. In the Permian Basin, those gathering systems involve processing plants that remove impurities before pumping produced gas into the main lines. For that, "Midstreams are working to add capacity with multiple gas plants under construction."
On the production side, she notes that increasingly mature wells in the Permian tend to have a higher gas-to-oil ratio (GOR), so even without new drilling, old wells are producing more natural gas.
Some industry insiders are less sympathetic about pipeline bottlenecks. Grant Swartzwelder, principal of Petro Growth Advisors, who is also in leadership with companies supplying environmental solutions and vapor recovery units, noted that "limited takeaway capacity was known when the producer drilled and completed their well." He suggests producers either limit drilling to match pipeline reality or work with midstream companies to grow capacities.
Swartzwelder adds that, "Increased flaring is so obvious," easily photographed for negative publicity, "that it really stains the industry's reputation."
And the midstream capacity that does exist can be fragile, susceptible to compressor breakdowns or even routine maintenance. "So when a (compressor) unit breaks and goes down, the gas flow drops and results in emergency flaring," he said.
While environmentalists push for greater regulation, the industry notes that its previous record of improvement--and its already-better record compared to many international producers--shows that the bump is an anomaly, and that further regulation by the Environmental Protection Agency (EPA) or other agencies would be unwarranted and likely burdensome.
Subscribers can click here for all project reports mentioned in this article and click here for the related plant profiles.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Still, producers' growing push toward environmental responsibility has led most to cut flaring while some, including giant Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas)--have pledged to eliminate it altogether in the near future. And it has dropped steadily for several years.
In a report issued in December of 2022, Texans for Natural Gas issued a statement tallying the industry's recent flaring improvements.
The report said flaring intensity had declined in the Permian by more than 34% from 2020 to 2021. And over the same period, Texas as a whole had dropped flaring intensity by around 60%. It also noted that the Permian is far ahead of many global competitors, citing Venezuela in particular--an admittedly easy target--whose flaring rate is 2,621% higher.
But for the 12-month period ending June 30, flaring issues flared up again, according to a Bloomberg assessment. Over that time period, Bloomberg says Permian producers flared 97 billion cubic feet of natural gas--about one day's worth of the fuel for the entire U.S.
While headlines are blaming environmental, social and governance (ESG) avoidance, the story is more complex, says a report from East Daley Analytics and Validere, which was released in May. It points out that a combination of pipeline traffic jams and increasing rig counts and production are at the heart of the rise and takes a stab at predicting future takeaway issues.
The study considers several possible market scenarios. In the base case, it said, "Excess gas production (gas supply exceeding local demand and effective pipeline takeaway capacity) averages 200 million cubic feet per day (MMcf/d) over 17 months and peaks at ~500 MMcf/d in May 2024.
If Permian rig counts are higher than expected or if new pipelines are delayed, it gets worse. The report says, "Under any future scenario, the expected start of the 2.5-Bcf/d (billion cubic feet per day) Matterhorn Express Pipeline in mid-2024 will be critical to re-aligning the gas supply chain." Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas Pipelines Project Database can click here for the related project reports.
"Compressor expansions planned on the Permian Highway and Whistler pipelines in the back half of 4Q23 will also add 1 Bcf/d to help alleviate the bottleneck," according to the report. Subscribers can click here for projects tied to the Permian Highway expansion and click here for those tied to the Whistler Pipeline Capacity Expansion.
Indeed, says Suzie Boyd, founder and president of midstream consultant firm Caballo Loco, Whistler Pipeline owner WhiteWater Midstream (Austin, Texas) is adding compression and other updates to boost its capacity by 500 MMcf/d of capacity, improvements that are expected to come online this month.
But pipeline constraints are not just about the trunklines, they're also in the gathering systems, Boyd said, which are like capillaries to the human body's arteries. In the Permian Basin, those gathering systems involve processing plants that remove impurities before pumping produced gas into the main lines. For that, "Midstreams are working to add capacity with multiple gas plants under construction."
On the production side, she notes that increasingly mature wells in the Permian tend to have a higher gas-to-oil ratio (GOR), so even without new drilling, old wells are producing more natural gas.
Some industry insiders are less sympathetic about pipeline bottlenecks. Grant Swartzwelder, principal of Petro Growth Advisors, who is also in leadership with companies supplying environmental solutions and vapor recovery units, noted that "limited takeaway capacity was known when the producer drilled and completed their well." He suggests producers either limit drilling to match pipeline reality or work with midstream companies to grow capacities.
Swartzwelder adds that, "Increased flaring is so obvious," easily photographed for negative publicity, "that it really stains the industry's reputation."
And the midstream capacity that does exist can be fragile, susceptible to compressor breakdowns or even routine maintenance. "So when a (compressor) unit breaks and goes down, the gas flow drops and results in emergency flaring," he said.
While environmentalists push for greater regulation, the industry notes that its previous record of improvement--and its already-better record compared to many international producers--shows that the bump is an anomaly, and that further regulation by the Environmental Protection Agency (EPA) or other agencies would be unwarranted and likely burdensome.
Subscribers can click here for all project reports mentioned in this article and click here for the related plant profiles.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
