The Nickel Report

Flaring has the attention of RRC, Producers and Stakeholders

Flaring has the attention of the Texas Railroad Commission (RRC), oil and natural gas companies and stakeholders such as royalty owners, investors and environmental groups. Requests for RRC authorization of flaring has been on the increase in the Permian Basin. As a result, a number of interested parties are looking at regulatory changes. Some interested parties voice concern that a valuable resource is being wasted, others state that the definition of natural gas 'waste' is too limited, still others are concerned about methane emissions and some all of the above. Though the interested parties may not always be aligned, there is a general sense that regulatory amendments are needed.

Flaring is the release of natural gas through a combustion device and venting is the release of natural gas directly into the atmosphere. The RRC regulates flaring and venting primarily under Statewide Rule (SWR) 32. [i] RRC first adopted SWR 32 rule in December 1996 and later modified the rule in July 2000 and September 2004. In January 2014, RRC issued a Notice to Operators which states that “[r]eleases of gas resulting from routine oil and gas production operations are necessary in the efficient drilling and operation of oil and gas wells and are authorized subject to the requirements of subsection (e) of SWR 32. [ii] Conditions in the field have changed since the last modification of the rule on multiple levels.

Environmental advocacy groups have long taken the position that stronger regulation of venting and flaring is needed. Many of these groups point to shale plays in Texas as evidence that venting and flaring are used long-term to operate rather than flaring for a short duration as needed for safety reasons or to allow for installation and maintenance.  For example, the Environmental Defense Fund (EDF) launched the Permian Methane Campaign to measure methane emissions and flaring efficiency in the Permian Basin and published the first survey results in April 2020. According to EDF, the findings indicate that companies emit at least three times more methane than EPA estimates. (Energy in Depth disputed the findings. [iii] Sierra Club supports the methane reduction efforts and has also called on the RRC to bolster its environmental compliance activities and to work with the Texas Commission on Environmental Quality to begin a new flaring and methane capture rule.

Some say the goal is uniformity and setting a level playing field, citing their position that approaches taken by oil and natural gas companies with regard to flaring cover a wide spectrum.  These stakeholders claim that some companies use flaring as a matter of course while others have voluntarily put in place robust proactive site assessment and operational measures and many have made significant investments in technology upgrades. In an effort to focus on industry-led solutions, seven trade associations and over 40 oil and natural gas companies established the Texas Methane and Flaring Coalition (Coalition) in December 2019. The Coalition is voluntary and is focused on the development of quality data and transparent reporting of flared and vented volumes, the development of a matrix that defines why and when venting and flaring may be necessary and the identification and promotion of best practices and promising new technologies.

Other entities have taken notice of data indicating an increase in flaring in the Permian. For instance, the National Academy of Sciences in the Proceedings of the National Academy of Sciences of the United States (PNAS) stated in an opinion published in May 2020 that until recently five countries, Russia, Nigeria, Iran, Iraq and Algeria accounted for half of all flaring. By 2010, the United States was in the mix primarily due to the shale boom. [iv]

As previously reported, RRC established the Blue Ribbon Task Force for Oil Economic Recovery (Blue Ribbon Task Force) at its April 22, 2020, open meeting regarding production cuts. [v] The Blue Ribbon Task Force is made up of eight trade associations including: the Texas Oil & Gas Association (TxOGA), the Texas Alliance of Energy Producers (Alliance), the Texas Independent Producers and Royalty Owners Association (TIPRO), the Permian Basin Petroleum Association (PBPA), the Panhandle Producers and Royalty Owners Association (PPRA), the Texas Pipeline Association, the Texas Royalty Council and the South Texas Energy & Economic Roundtable.  RRC again heard discussion surrounding proration at its open meeting on May 5, 2020. [vi] As part of the discussion on proration, several speakers noted the need for the RRC to address natural gas flaring issues. At that meeting, the Commissioners asked the Blue Ribbon Task Force to provide additional recommendations related to the reduction of flaring at the June open meeting.

June 16, 2020, RRC Open Meeting

The RRC held a regular open meeting on June 16, 2020. [vii] The Commissioners invited three panels to speak on the issue of flaring or venting of natural gas “to identify and analyze methods to reduce the amount, instances, and/or ratio of flaring or venting of natural gas in Texas in a manner that eliminates or mitigates any economic harm or difficulty to owners and operators of natural gas well.’ [viii]

The first panel to speak was made up of three environmental groups including: EarthX (Trammel Crow), EDR (Collin Leyden) and Sierra Club (Cyrus Reed). All agreed that flaring must be dramatically reduced. A change in incentives and increased inspections and enforcement were emphasized as well as coordination with TCEQ on air emissions. EarthX in particular focused on incentives. Commissioner Sitton noted that the RRC has historically considered economics in its assessment of waste.

The next panel to speak was made up of three oil and natural gas operators including: Latigo Petroleum, LLC (Kirk Edwards), Parsley Energy, Inc. (Stephanie Reed), and Occidental Petroleum Corporation (Occidental) (Mike Starrett). There was general consensus among the presenters that flaring should be reduced though each company took a somewhat different approach to get there. Occidental noted that in order to improve environmental performance, executive commitment and employee buy-in were necessary components.

Finally, four associations from the Blue Ribbon Task Force were asked to speak. They presented a report to the Commissioners entitled Flaring Recommendations and Best Practices prepared by the Coalition. The panel focused on the recommendations in the report. Proactive, voluntary efforts were highlighted. The Coalition recommends new facility designs and technology to improve environmental performance; expansion of pipeline infrastructure to improve air quality and safety while allowing more efficient transport and a robust regulatory framework that includes permitting, compliance and enforcement to assist in shortening the duration and volume of flaring. Specific recommendations include: 1) a flaring matrix which describes when flaring is necessary and recommendations for the application of SWR 32 that will reduce overall flaring through the reduction of timeframes needed for administrative approvals; 2) enhancements to the SWR 32 Data Sheet; 3) the creation of a new report to be known as the Subsequent Report with the goal of providing clear and usable data and; 4) updates to the Production Report Form Instructions to add a code for flaring so operators can account for flared and vented gas dispositions separately. Best practices were also emphasized.

In closing the agenda item, Chairman Christian emphasized the need to bring certainty to the markets. He then directed staff to review the Blue Ribbon Task Force recommendations and report back at the next open meeting to be held August 4, 2020.

Definition of “waste” is critical

RRC has been grappling with issues related to flaring for some time. A crucial element in the discussion of mechanisms to reduce flaring is the definition of waste. RRC has taken the position that flaring of natural gas is not waste if it is authorized under SWR 32. Under SWR 32, an exception may be made “to allow additional releases of gas if the operator of a well or production facility presents information to show the necessity for the release.” [ix] One of the listed situations supporting the release of natural gas in found at 16 TAC 32(f)(2)(E) which provides an exception if “[a] avoiding curtailment of gas production…will result in a reduction of ultimate recovery from a gas well or reservoir.

New Mexico has taken a different approach. In draft rules released on July 20, 2020 regarding methane emissions “[v]enting and flaring of natural gas during drilling, completion or production operations constitutes waste and is prohibited…” Limited exceptions are provided in the rule. [x] Further, commencing January 1, 2022, the draft rule requires operators to “reduce the annual volume of vented and flared natural gas on a statewide basis in order to capture ninety-eight percent of the natural gas produced from its wells no later than December 31, 2026. [xi] At least some of the entities that worked on the New Mexico draft rules are also working on the Texas rule amendments.

The regulatory framework RRC may eventually adopt could take many forms. It remains to be seen what RRC regulatory changes that govern flaring will look like, but there is no question that change is on the horizon.

[i] SWR 32 can be found at 16 Texas Administrative Code (TAC) [ ] 3.32.

[ii] www.rrc.state.tx.us>media>nto_state_disaster_swr_32_og_3-19-2020.pdf

[iii] https://eidclimate.org/four-things-to-know-about-edfs-new-permian-methane-estimates/

[iv] https://www.pnas.org/content/117/23/12503

[v] Link to blog

[vi] Link to blog

[vii] View the archived RRC webcast here. Agenda item 311.

[viii] Open Meeting Notice for Tuesday, June 16,2020

[ix] 16 TAC 32(f)(2)

[x] 19.15.27.8 New Mexico Administrative Code (NMAC)

[xi] 19.15.27.9 NMAC