Private oil companies fall short on cutting flaring

Private companies in America’s most productive oil region are burning unwanted natural gas at almost six times the level of intensity than publicly listed companies. 

The majority of flaring by the top operators in the Permian Basin — an area that accounts for more than half of US oil output — still occurs routinely, despite industry pledges of cleaner supply chains within the next decade, according to figures from energy consultancy Rystad. 

Among the 29 largest operators in the region, close to 80 per cent of flaring — the process of burning off gas to relieve pressure during oil extraction — by private companies occurs regularly, compared with 45 per cent for listed companies, Rystad data show. 

Private oil and gas companies burnt off an average of 423 cubic feet of gas for every barrel of oil produced compared with just 74 cubic feet a barrel for their listed rivals.

The environmental impact of gas flaring, which results in more than 400m tonnes of CO2 being emitted into the atmosphere each year, has caused investors to push companies in the industry to make commitments to end the practice. 

Most of the big oil groups such as Chevron, Royal Dutch Shell and ConocoPhillips, have committed to end “routine flaring” by 2030, many as part of a global gas flaring partnership initiative lead by the World Bank. However, private operators are yet to announce similar targets.

“Many companies will need to do a lot to eliminate routine flaring,” said Artem Abramov, head of shale research at Rystad. Yet this is now almost a requirement for public companies to be able to reach their net zero emissions targets, he explained.

Each year more than 5tn cubic feet of gas is wasted through worldwide flaring rather than being captured and sold for energy supplies. That is enough to satisfy the natural gas demand of all residential buildings in the US.

There is no standardised definition of what is considered routine flaring in the industry, but it generally refers to more consistent burning of gas, as opposed to short bursts that typically take place for safety reasons. 

This type of routine flaring occurs when companies lack the infrastructure to capture the gas — often arguing that the low price of natural gas, at just $3 per million British thermal units, erodes the commercial viability of delivering it to market.

Among the top listed companies operating in the Permian, BP has the worst flaring intensity rate, burning 268 cubic feet per barrel of oil produced. But this is largely blamed on the poor infrastructure of older wells that it inherited from BHP in 2018. 

“BP has actually done a lot to bring flaring intensity down since it took over operatorship from BHP,” said Abramov. “It has [much lower] flaring intensity on its own new projects, but it still experiences occasional infrastructure failures on legacy BHP units.”

Controlling flaring from new wells could have a significant impact on overall upstream emissions from the oil and gas industry. Flaring tends to be particularly bad in the early years of an oil region’s production as gas pipelines and infrastructure are yet to be set up. In 2019, the average volume of gas flared by new wells in the Permian — considered as those established after January 2018 — was more than four times higher than by older facilities.

New wells are becoming less polluting, according to a report commissioned by the Environmental Defense Fund, a non-profit environmental advocacy group in the US. But, the EDF argues, companies should begin to extend their commitments beyond routine flaring — to also ensure new operations avoid burning gas even in the early stages of oil production, as the Apache Corporation is already working towards. 

“This just has to be the new standard for oil and gas infrastructure moving forward . . . that you cannot bring your oil online unless you have the gas infrastructure in place,” said Colin Leyden, a director at the EDF.

Additional reporting by Chris Campbell

Twice weekly newsletter

Energy is the world’s indispensable business and Energy Source is its newsletter. Every Tuesday and Thursday, direct to your inbox, Energy Source brings you essential news, forward-thinking analysis and insider intelligence. Sign up here.