Permian natural gas flaring has become a hot topic throughout 2018. Natural gas pipeline capacity out of the basin has filled and outright pricing at Waha has fallen to $1.28/MMbtu over the last 7 days (Aug.29 – Sept 4). However, as highlighted in Permian producer earnings calls over several quarters, not all operators are experiencing infrastructure bottlenecks the same. Today, BTU Analytics will discuss how flaring has shifted across the basin as bottlenecks have arisen and whether that is the only outlet operators have to ease such pressure.
In May, we published Should We Be Caring About Permian Natural Gas Flaring?, as many operators are increasingly deciding to flare and vent a portion of their gross natural gas production, easing infrastructure bottlenecks so that they can keep producing oil. In fact, as natural gas pipelines have filled up in 2018, it has become fairly uncommon for flaring permits in Texas to be denied to producers. This rapid move towards flaring can be seen in the chart below, which shows how the pace of Permian natural gas flaring has increased throughout 2018. Permian natural gas flaring volumes in Texas are based on regions 7C, 08, and 8A in Texas Railroad Commission data and may be subject to revision. New Mexico flared volumes shown in the chart account for the entire state, though little flaring exists there outside of the Permian.
Flared and vented volumes in May, the last month for which Texas Railroad Commission and New Mexico Oil Conservation Division data are available, are 41% higher than the same month the year earlier, averaging more than 260 MMcf/d for the month. These volumes could increase even more in recent months when viewing satellite data from SkyTruth, which uses infrared satellite imagery to track natural gas flaring across the globe. The satellite data tracks the amount of heat released by natural gas flaring. After normalizing for a change in SkyTruth methodology in December 2017, the satellite data implies that Permian natural gas flaring volumes reached an average of 330 MMcf/d from June to August, a 23% increase over May.
In addition to rising flared volumes across the basin, trends in where that flaring is occurring have shifted over the past year. The map below shows the amount of radiant heat let off by flaring on December 12, 2017. Larger dots on the map correspond to higher amounts of radiant heat. In late 2017, a lack of natural gas processing capacity in the Delaware Basin led to a majority of the Permian natural gas flaring to occur in the Delaware Basin. Correspondingly, a smaller percentage of Permian natural gas flaring occurred in the Midland Basin.
However, multiple natural gas processing plants have ramped up in the Delaware over the past few months, easing natural gas flaring activity in northern Reeves County, as shown in the August 30, 2018, flaring map below. But this relief has not occurred across the Delaware, as flaring has continued in New Mexico and increased in Ward and Pecos counties. In the Midland, flaring has increased significantly in northwest Howard County, likely driven by large multi-well pads coming on line at once.
Flaring and venting provide operators a relief valve to continue producing oil, which drives the economics for Permian wells. Without this option, operators could be forced to shut in production while they wait on new infrastructure projects. BTU Analytics expects a combination of flaring, shut-ins, and increased send out to Mexico to allow Permian oil production to grow into 2H2019 when the new Gulf Coast Express pipeline is expected to come online. However, additional midstream constraints will handicap growth potential over that time frame. More on BTU Analytics outlook on natural gas and crude oil supply growth from the Permian and other basins can be found in our monthly Upstream Outlook.