Relatively clean and flexible, natural gas has been described as “the champagne of hydrocarbons.” Lately, though, energy companies are treating it about as sparingly as a team that just won the World Series. Tremendous quantities are intentionally burned off to make way for oil production. The problem is likely to get worse in the U.S., the number four flarer of gas behind Iran, Iraq and world-leader Russia. It is more than an issue of waste: Flaring may be responsible for 1% of global greenhouse gas emissions according to Raymond James. Up in SmokeCountries with the highest gas flaring volumein 2018, billion cubic feetSource: World Bank
Geography determines whether it is worth something or not. For example, the big oil fields of eastern Siberia or Algeria’s Sahara desert are so far from end markets that the investment to process, gather and transport the associated gas produced would exceed its market value. In other cases, though, poor planning and regulation are as much to blame. Riccardo Puliti, Global Director, Energy and Extractive Industries at The World Bank, notes that there is a “huge potential market” for gas in densely-populated Iraq, which is wracked by power shortages. The bank estimates that establishing a regulatory framework for selling the gas could bring $21 billion in investment to the country.
Unlike Iraq, the U.S. has a robust legal framework and enough natural gas pipelines to reach the moon. But America also has incredibly cheap gas, which encourages waste. Building more gas pipes to the Permian Basin, the center of America’s oil patch, is less of a priority than completing oil pipelines. Meanwhile, connecting them to outlying areas like the Bakken region in North Dakota is uneconomical at any price.
This results in some strange anomalies. Last year the price of gas at the Waha Hub in Texas reached negative four dollars per million British thermal units while gas in the other parts of the country was around $2.50/MMBtu. In other words, companies with natural gas on their hands in that region had to pay people to take it. Prices would still be negative if the local regulator, the Railroad Commission of Texas, hadn’t greatly expanded the amount of gas that could be burned off. Last year a subsidiary of pipeline company Williams claimed in a lawsuit that the commission allowed a firm that could have used its pipelines to flare gas instead.