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Shale Oil ‘Flaring’ Is Dirty Secret Of U.S. Oil Boom

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"Shale Oil ‘Flaring’ Is Dirty Secret Of U.S. Oil Boom"

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by Mindy Lubber

Given the economic, energy and climate change challenges we face, you’d think it wouldn’t be necessary to write a column illustrating how it makes no sense to “flare” — literally burn up — $110 million worth of perfectly good natural gas each year without even using it to power a single light bulb.

Yet that’s exactly what’s happening in North Dakota’s shale oil fields these days, as hydraulic fracturing, or “fracking,” liberates vast, once-uneconomic oil reserves — and billions of cubic feet of underground gas along with them. More than two million tons of carbon pollution is being flared into the air each year in this state alone.

The story behind this is not just one of short-sighted waste and environmental harm, but a pressing reminder of the business risks for oil companies that don’t get this hot new way of drilling for oil right.

Major investors are noticing those risks. In a letter sent this week to 21 of the industry’s largest shale oil producers, three-dozen investors representing $500 billion in assets wrote:

We are concerned that excessive flaring, because of its impact on air quality and climate change, poses significant risks for the companies involved, and for the industry at large, ultimately threatening the industry’s license to operate.

The financial and reputational risks for oil companies should be obvious. First, we’re supposed to be valuing precious domestic energy resources and our environment. But the New York Times reports that in North Dakota’s shale oil fields alone, “Every day, more than 100 million cubic feet of natural gas is flared this way — enough energy to heat half a million homes for a day.”

Investors see this as a clear bottom-line risk — serious enough to ultimately threaten the industry’s long-term profits as well as its license to operate.

“On a lifecycle basis,” the letter continues, “emissions from oil produced with high flaring rates may be comparable to those from Canada’s vast oil sands region” (a particularly high-carbon oil source.) “This could make it subject to penalties under clean fuel standards like those adopted by California, and being actively considered by the 13 Northeast states that are members of the Regional Greenhouse Gas Initiative. Such standards reduce the carbon intensity of fuel over time and limit the market (emphasis mine) for more carbon-intensive sources.”

The oil companies counter that, given the current lack of infrastructure for moving the gas from the oil wells, simply burning it off at the wellhead is the most economic course.

My question in response would be this: Given business, reputational, environmental and other risks, can’t the industry figure out a way to successfully capture this perfectly usable gas at a profit?

Before this practice mushrooms — as it’s poised to do — the time to curb this activity is now.

Fracking has opened up previously inaccessible oil fields in North Dakota, Texas, California, Colorado, Ohio and several other states, and flaring isn’t limited to North Dakota. Goldman Sachs recently forecast that the U.S. is on a path to become the world’s top oil producer in the next five years — a position it last occupied in 1973. Nearly all of this increased production would come from shale oil fracking.

If oil companies can’t figure out a way to tap this gas, then governments will come in with new potentially-punitive regulations — a process that will likely be messy given that fracking is mostly regulated by patchwork-quilt state rules.

In a world that’s approaching climate change tipping points — as yesterday’s new extreme weather global trends report from the Intergovernmental Panel on Climate Change makes clear — there is no place for this kind of heedless, useless pollution.

We can do better than this.

Mindy S. Lubber is the President of Ceres, the leading U.S. coalition of investors and environmental leaders working to improve corporate environmental, social and governance practices. This piece was originally published at the Huffington Post.

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7 Responses to Shale Oil ‘Flaring’ Is Dirty Secret Of U.S. Oil Boom

  1. cervantes says:

    Sorry for the slightly OT but this is definitely refreshing. ABC’s Bill Blakemore gives us a hard hitting story completely free of false “balance.” He goes so far as to say that world leaders are contemptuous of the U.S. for caving in to climate change denialism, which he presents, unequivocally, as a cynical campaign of lies.

  2. chopper says:

    Every day, more than 100 million cubic feet of natural gas is flared this way — enough energy to heat half a million homes for a day

    that’s amazing, since there aren’t even half a million homes in north dakota. they flare off enough gas to heat at least every home in the state!

  3. Sasparilla says:

    Here’s what I’ve been observing in the U.S. natural gas industry recently. At this point natural gas drillers are shutting wells in because they can’t drill profitably (way too much capacity in relation to demand with natural gas prices at 10 year lows) – many of the drillers are shifting over to oil which is quite profitable but produces additional natural gas capacity as a by product.

    The very, very warm winter for much of the U.S. led to a very low amount of natural gas used during the winter, the shift to summer for much of March in the US Midwest to the east coast crimped that demand even further. At this point most US natural gas storage (used for the following winter season) is already full (normally we have to wait till well into the summer season, or the end of it, before this happens)

    Two things are happening here – the oil drilling is adding to the natural gas market over capacity even though the natural gas drillers are trying to reduce it and because of the record warmth of the last winter and spring we’ve already filled up the US storage for the following winter – there’s very few places for additional gas to go.

    I’m not defending the flaring, its mindless – of course our energy policy in relation to climate change is mindless – but at this point we don’t have much storage to put natural gas into and little demand even at record low prices.

    Natural gas prices are expected to continue to decline through this summer (and possibly beyond) because of this (additional gas capacity due to oil fracking).

    Eventually natural gas supply and demand in the US will come back into balance, natural gas prices will move back up significantly and it’ll make financial sense for the oil drillers to capture it (and we’ll have storage capacity available) – until then you’d need governmental regulations to encourage industry to build out storage capacity and infrastructure to capture it (not a short term proposition) – of course I doubt the GOP controlled House would even think of making this happen.

  4. DRT says:

    Supplement or replace corporate income taxes with a tax on waste.

  5. clays says:

    They flare the gas from oil wells because the cost of getting gathering lines to the OIL wells costs more than the natural gas would sell for.

    And even if you have gathering lines, you need a market to sell it in. The US is currently oversupplied with natural gas. So, the only market you might find for say a Oil well in North Dakota making a bit of gas as well might be thousands of miles away without infrastructure to get it there.

    In a world of common sense, we would find new uses for all this extra natural gas and allow companies to invest in proper infrastructure to get it to new markets. But according to liberal/progressive ideology if we did that we would all die in a year or two from climate change.

  6. John Tucker says:

    Horrible. As is the practice of flaring hundreds of millions if not BILLIONS of cu feet in Africa a day.

    A continent where several very responsible environmentalists are suggesting INCREASING coal use just to give forests a chance to regrow. A continent where over 60 percent do not have access to reliable eccentricity and poverty to the point of hopelessness is rampant.

    Truly a criminal waste.

    Visible from space, deadly on Earth: the gas flares of Nigeria

    ( http://www.independent.co.uk/news/world/africa/visible-from-space-deadly-on-earth-the-gas-flares-of-nigeria-1955108.html )