Flaring in Texas, North Dakota tied to infrastructure shortfalls

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Many people like to light fireworks over Memorial Day weekend but they probably aren't lighting anything as brightly as oil and gas companies in Texas.

The Lone Star State has seen an increase in flaring - the disposal of natural gas by burning - in recent months. According to The Texas Tribune , the reason why more natural gas is being flared is a lack of pipeline capacity.

Ramona Nye, a spokesperson for the Texas Railroad Commission - which regulates the oil and gas industry in the state, told the news provider that flaring permits approved by the agency increased from 107 in fiscal 2008 to 651 in fiscal 2011.

One of the main contributors to the flaring situation is the state's booming Eagle Ford shale. According to the Commission , in 2008 the play produced 1 billion cubic feet of shale gas and 130,802 barrels of oil. By 2011 those numbers had risen to 243 billion cubic feet and 30,453,253 barrels, respectively.

However, the growth of the infrastructure in the play has not kept up with rising production, leading to the increased flaring as there are not enough pipelines in place to handle the natural gas that surfaces with oil.

"There's just more demand for pipelines than they can currently keep up with," James Mann, an attorney who works with pipeline companies, told the Tribune.

North Dakota has flaring concerns too

Much like Texas' Eagle Ford, North Dakota's Bakken shale has lead to a huge increase in shale gas production. According to the U.S. Energy Information Administration , 2005 saw the play average 160 million cubic feet of gas produced each day, while September 2011 witnessed more than 485 million cubic feet produced daily.

For much the same reason as Texas (a lack of pipeline capacity), more than one-third of this gas was flared or otherwise not marketed. In May of last year, the North Dakota Department of Mineral Resources estimated that 29 percent of gas produced was flared, while another 7 percent was unaccounted for or otherwise lost.

However, there is a bit of hope in sight as a North Dakota Pipeline Authority report from 2010 showed that one county in the state cut its flaring by 62 percent from December 2008 to December 2009. The county was reportedly able to accomplish this with the addition of two new natural gas facilities and the corresponding expansion of related infrastructure.

Still some high profile investors are pushing companies to reveal precisely how much natural gas they flare. According to Reuters , earlier this year 36 investors representing half a trillion dollars in assets sent a letter to 21 major drilling companies asking them about flaring in North Dakota, Texas, Ohio and Colorado.

Flaring "poses significant risks for the companies involved, and for the industry at large, ultimately threatening the industry's license to operate," part of the letter read, reports the news provider.

A worldwide issue

The issue of flaring is hardly an American problem either. According to the Global Gas Flaring Reduction partnership , 5.3 trillion cubic feet of natural gas is either being flared or vented annually. (Venting refers to the release of the natural gas into the atmosphere, which the EIA says is more damaging than flaring as methane is more harmful than carbon dioxide).

That 5.3 trillion figure represents one-quarter of yearly natural gas consumption in the U.S. According to the GGFR, Russia was responsible for the most natural gas flaring in 2010, burning off twice as much natural gas as the next closest country, Nigeria.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: News Headlines , Commodities , Economy

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