Natural Gas is a Burning Issue

Ken Silverstein | Oct 05, 2011

 

A new issue is sparking interest in natural gas. It’s “flaring” -- the burning off of natural gas that is discovered alongside oil deposits.

The procedure has long been used elsewhere but is only recently coming to light in this country and especially in the Bakken shale fields of North Dakota. Neither the oil drillers nor the environmentalists disagree that the natural gas at issue should be captured, piped and processed before it consumed.

But energy conglomerates say that they are unable to construct the pipelines faster than they can get the gas. The resource is therefore wasted, or money literally up in smoke.  Beside piping it, the companies are considering liquefying the gas and creating LNG that would be globally shipped.

To the green groups, it is about reducing pollution and minimizing the environmental footprint. They are contending that the drillers find the high-priced oil more profitable than the lower-valued natural gas. As companies plumb America’s rich shale fields, the price of such natural gas will decline and the situation will only worsen.

In North Dakota, companies are flaring 100 million cubic feet of natural gas per day, or about 30 percent of all such gas produced in the state, says the New York Times. That’s enough to heat 500,000 homes. Pollution wise, it’s like putting 380,000 cars on the road, it adds, or adding a mid-sized coal plant to the mix.

Even with the flaring, other drillers are poking holes in the ground at an ever-rapid rate. For example, 763 wells were drilled in the Marcellus Shale region in Pennsylvania, says the Natural Resource Defense Council. Each well requires 14 to 80 acres of room, increasing the multiplier effect, it adds.

“The perverse fact is that the demand for gas is still very high: These same companies are continuing to drill elsewhere for the same gas they’re burning off on the prairies,” writes Peter Lehner of the resource council. “New gas wells are built every day, encroaching on wild and scenic landscapes, disrupting communities, and moving closer and closer to our urban watersheds.”

Balancing Concerns

Globally, flaring is a much bigger issue. An earlier study by the World Bank says that 5.3 trillion feet of natural gas is flared each year -- about a quarter of the natural gas consumed in this country and roughly 30 percent of the gas used in the European Union. That same study also concluded that global gas flaring releases about 400 million tons of carbon dioxide emissions per year.

The major flaring region in the world is Russia and the Caspian, which is followed by the Middle East and North Africa. Sub-Saharan Africa is the third-biggest flaring region and then Latin America. To battle flaring in Nigeria, which is one of the biggest culprits, the World Bank says that government and industry are aggressively outlining ways to fix the problem.

If producers could monetize the gas and make a profit, they would do so. That's why they are investing billions throughout the LNG value chain -- everything from liquefying stations, to transport ships to re-gasification ports to pipelines.

ExxonMobil, for instance, is spending $3.5 billion to prevent flaring in Nigeria. To that end, it has built LNG facilities that will process about 950 million cubic feet of natural gas per day, or enough to make 50,000 barrels of natural gas liquids.

“In a number of countries, regulatory, financial, and infrastructure barriers still hamper the utilization of natural gas associated with oil production,” says Somit Varma, World Bank Group’s Director for Oil, Gas, Mining and Chemicals.  “Governments and companies need to cooperate in removing these obstacles and realizing the value of this wasted resource while minimizing the environmental harm caused by gas flaring.”

Transforming such stranded gas into LNG is one possibility. So, too, is the expansion of the pipeline and processing network. While trying to build infrastructure in the United States has been compared to “herding cats,” both industry and their regulators say that they are committed to do so. Otherwise, the potential for shale-gas here will go unrealized.

Investmentlogs.com interviewed North Dakota’s Department of Mineral Resources, which says that the state has tripled its gas processing capacity over the last five years. Next year, the state’s processing and transport capacity will be 1.1 billion cubic feet per day.

Flaring is an important issue to the environmentalists, who are now trying to reconcile that concern with the needs of producers to streamline rules and to expand the pipeline network. If they can work it out, the natural gas at issue could then be processed and consumed instead of getting burned off and wasted.

EnergyBiz Insider has been been nominated in 2010 and 2011 for Best Online Column by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

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energybizinsider@energycentral.com