Shale oil boom sends waste gas burn-off soaring

HOUSTON Mon Jul 25, 2011 2:18pm EDT

HOUSTON (Reuters) - Flaring of natural gas from wells is on the upswing in Texas and North Dakota as oil and gas producers rush to develop new shale plays, and critics are not happy about it.

Flaring, once a common practice, involves burning off natural gas that cannot be captured and sold in order to produce more valuable oil. It is frowned upon because it causes air pollution, boosts global warming and wastes natural resources.

Because the market currently prices oil much higher than natural gas, companies including Chesapeake Energy and EOG Resources have sped up the search for crude in basins like the Eagle Ford in Texas and the Bakken in North Dakota.

Gas comes up with the oil, and although pipeline companies are rushing to build the capacity needed to transport the gas to market, their efforts have not caught up with the spike in wells drilled. Unlike gas, oil can be trucked or railed to market.

"The gas is worth very little in comparison to oil," said Bruce Hicks, assistant director of North Dakota's state's oil and gas division. "This is an oil-driven play."

NUMBERS TELL STORY

The number of rigs drilling for oil in North America has almost doubled from a year ago to 1,021, according to a report from Baker Hughes oilfield equipment company.

The Texas Railroad Commission, which approves gas flaring permits, issued a total of 537 from September 2010 through July 2011, said agency spokeswoman Ramona Nye. That compares with 306 in all of fiscal 2010 and 107 in 2008.

The Eagle Ford shale had 56 active permits as of July 22. Seventy-nine expired from September through June. By comparison, the older Barnett shale play in North Texas had no active permits and 33 expired in the same period.

In North Dakota, the amount of natural gas that is flared per day has increased 1200 percent since 2004, when Bakken development began its surge, and there have been relatively few complaints, Hicks said.

Centered on the city of Fort Worth, the Barnett is largely in urbanized areas, prompting tighter regulation limiting flaring. The Eagle Ford and Bakken are almost entirely in rural areas, where there is less objection to flaring wells.

Tom Smith of the Texas office of the consumer group Public Citizen said the practice pollutes the air and contributes to global warming.

"With our climate warming, we don't need to be adding fuel to the fire," Smith said.

Companies say temporary flaring is unavoidable, especially in fields like the Eagle Ford and the Bakken where the pipeline infrastructure is incomplete.

"Chesapeake flares natural gas on a case-by-case basis as needed, typically a few days," spokesman Silver Vasquez said in an email. "The process is closely monitored in accordance with regulations."

Analysts agree flaring wastes a valuable energy source.

But companies as well as state officials, far from being careless about it, want to speed pipeline development to minimize flaring. Burned-off gas, after all, generates no revenue.

"They are just burning money," said Mike Breard, energy analyst at Hodges Capital Management in Dallas, but the situation limits the options.

"They are drilling so many wells down there, and the infrastructure just hasn't kept up, so you don't have any real choice," Breard said.

(Editing by Alden Bentley)

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