HomeNewsTexas operators turn to flaring amid weak gas prices

Texas operators turn to flaring amid weak gas prices

5/1/2024

HOUSTON (Reuters)—Operators drilling for oil in Texas are scrambling to dispose of excess natural gas amid a supply glut and weak prices, prompting a sharp rise in flaring requests.

The Railroad Commission of Texas (RRC), which regulates the state's oil and natural gas industry, last week approved 21 exemption requests from operators, mostly in the Permian and Eagle Ford shale fields, to flare, more than four times the level it approved this time last year.

Flaring, the burning of unwanted gas, has come under greater regulatory scrutiny in recent years as environmental groups and climate activists seek to clamp down on the practice that releases greenhouse gases.

Producers, however, now face a dilemma with crude oil prices trading above $80/bbl but gas remaining depressed and in some places falling into negative territory.

"We think that operators will basically use all the tools in their tool box to try and keep producing oil because the oil returns are pretty strong right now," said Jason Feit, advisor to energy data provider Enverus. "Flaring is becoming more challenging everywhere, so I think that is something they are probably not wanting to do, but it would be preferable to shutting in any wells for sure.”

Operators can seek an exemption from Texas' flaring rule for safety reasons, maintenance or emergencies, and during the first 10 days of production when bringing on a new well, the RRC said.

Devon Energy requested 12 of those exemptions for its operations in the Eagle Ford in south Texas, while Callon, which was acquired by Apache in early April, made six request for assets in the Permian. All of those were approved.

"As we integrate the recently acquired Callon assets, we are working to get our arms around how we can efficiently move to a similar standard as Apache-operated assets, where we have a commitment to no routine flaring. This will take some time, and we are committed to safe and responsible operations throughout this process,” an Apache spokesperson said. Devon declined to comment.

Gas prices in many states, including Texas, have traded below zero several times over the past month or so due to low demand, ample renewable power supplies and pipeline outages and other work that has trapped gas in the country's top oil-producing state.

Spot natural gas at the Houston Ship Channel in Texas, the price the industry uses for the Eagle Ford, has averaged $1.68 per million British thermal units (MMBtu) so far this year, according to SNL Energy data on the LSEG terminal.

That compares with an average $2.26/MMBtu in 2023 and $4.07/MMBtu over the 5-yr period from 2018–2022.

Meanwhile, prices at the Waha hub in west Texas closed as low as –$2.99/MMBtu in mid-April, its lowest since December 2022, according to data from LSEG, meaning operators must pay to have their gas taken away. While Waha prices have recovered some, closing in positive territory at $0.75/MMBtu on Monday, they remain depressed.

The supply of associated gas is not likely to subside soon, as more producers continue to chase profitable barrels of oil in the Permian. Permian gas output is forecast to rise by 140 MMft3d to 25.2 Bft3d next month, according to the Energy Information Administration (EIA).

(Reporting by Georgina McCartney in Houston; Editing by Liz Hampton, Marguerita Choy and David Gregorio)

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