Texas Oil Regulator Shifts Stance on Gas Flaring

(Bloomberg) -- An unusual split vote by Texas regulators over the flaring of natural gas shows that the days of giving a free pass to the controversial practice in the Lone Star state may be numbered.

The chairman of the Texas Railroad Commission, which oversees the oil and gas industry in the state, dissented during a recent hearing over a flaring permit. Wayne Christian said there’s too much gas being burned off out of convenience rather than necessity, and he’s concerned about the “frequency and ease” with which companies are being allowed to continue with the practice.

While his comments didn’t alter commission policy, they indicate a change may be coming. Texas is widely regarded as the most oil-and-gas-friendly state, and the commission has never turned down a request to burn excess gas. But the volume now being flared -- more than residential gas demand for the whole of Texas -- has attracted criticism for both its wastefulness and the carbon-dioxide emissions that come with it.

Flaring is a common sight in places like the oilfields of the Permian Basin in West Texas, where companies increasingly resort to burning off the fuel because of a lack of pipeline capacity. The phenomenon has intensified as the oil boom in the Permian brings with it a glut of associated gas. Permian flaring rose about 85% last year, according to data from Oslo-based consultant Rystad Energy.

Josh Price, an analyst at Height Capital Markets, said he doesn’t believe regulators will clamp down on flaring until new pipelines are completed and substantially relieve the oversupply, which could come next year, but the chairman’s comments show how the commission is shifting on the issue and that concerns over flaring in Texas are growing.

The commission decided to “make a political statement saying ‘We are hearing people. We understand that this is becoming an issue and we’re going to do something about it,’” Price said in an interview. “That, coming from the chairman, has the most impact.”

The commission grants flaring permits for up to 180 days. Without that, the only alternative for some producers is the so-called shut-in of oil or gas wells to curb output. Special extensions to permits can be granted, usually for up to two years, Price said.

Christian made his comments Tuesday during a commission meeting in Austin to hear an attempt by pipeline operator Williams Co. to block the request for a flaring permit made by EXCO Resources Inc. It was the first time a driller has asked for a permit for all of the gas coming out of wells that are already connected to pipelines, and also the first time a midstream company has lodged a protest.

2-1 Vote

Williams argued that because EXCO’s wells in the Eagle Ford shale play in southern Texas are already connected to its pipelines, the driller shouldn’t be allowed to burn off the fuel. EXCO said contracting with Williams would result in a $146 million loss.

Because the pipeline contract was uneconomic, Commissioner Ryan Sitton argued it would be unreasonable to deny the permit under current policy, and EXCO won approval to flare until March 2020 with a 2-1 vote.

Such decisions are usually unanimous, according to Price. Christian also ordered staff to find out how many wells that are connected to pipelines have received permits that exceed the 180-day time frame.

“I’m concerned about whether the current level of flaring is in the long-term best interest of the state of Texas, the industry and the Railroad Commission,” Christian said.

Christian, Sitton, and EXCO didn’t immediately respond to requests for comment on the vote. “We are disappointed with the Railroad Commission’s ruling, however, we do appreciate the agency’s attention to the matter,” Williams spokesman Christopher Stockton said in an emailed statement.

Sitton said the EXCO case “is possibly going to set some precedent.” By reiterating drillers can flare for economic reasons even with pipe connections, the commission’s decision may lead to a short-term increase in the act, said Gabriel Collins, Baker Botts fellow in energy and environmental regulatory affairs at Rice University’s Baker Institute, said in an interview.

“If this is the start to them hammering down then they certainly wrapped the hammer in an awful lot of velvet,” Collins said.

To contact the reporter on this story:
Ryan Collins in Houston at rcollins74@bloomberg.net

To contact the editors responsible for this story:
Simon Casey at scasey4@bloomberg.net
Carlos Caminada