Enverus’s analysis of infrared data collected from NOAA’s Visible Infrared Imaging Radiometer Suite (VIIRS) platform suggests that August may be a record month for flaring in the Permian Basin, but relief is in sight in the form of the Gulf Coast Express pipeline.
As oil production has ramped up in the Permian, so too has the production of natural gas from the basin. As gas production has increased, it has overwhelmed the capacity of pipelines to move it to market. This surplus of gas has caused regional benchmark Waha gas prices to plunge relative to Henry Hub, even going to a negative cash price with sellers paying buyers to take their gas.
Much of this gas is being produced from oil wells. This so-called associated gas is forcing operators without access to pipelines to make a decision: shut in production of gas (but also oil) or continue to produce oil but either pay someone with capacity to take their gas or burn (flare) off their gas. Operators in Texas must file for a permit to flare beyond 10 days from completing their wells, but the Wall Street Journal reported in July that the regulator, the Texas Railroad Commission (TXRRC), had never denied a request.
The TXRRC and the New Mexico Oil Conservation Division collect data on venting and flaring from operators across the state. Venting involves directly releasing natural gas to the atmosphere, but venting is far more infrequent, for safety reasons. The chart to the right shows the breakout for flaring vs. venting in the New Mexico Permian. New Mexico breaks out venting, but Texas does not. Both Texas and New Mexico reported that venting and flaring in the Permian Basin peaked in Q4 2018, reaching over 570 mmcf/d in December. Venting and flaring then declined in the first quarter of 2019, the most recent data available from state reporters. The basis differential between Waha and Henry Hub also widened in Q4 2018 and subsequently tightened in Q1 2019.
For a lower-latency look at the level of flaring in the Permian Basin, data from NOAA’s VIIRS platform proves to be quite useful. VIIRS uses satellites to capture the emissions across the infrared and near-infrared spectrum from heat sources, such as fires and flares, daily. NOAA then applies their Nightfire algorithm to these detections and produces estimates of radiant heat and temperature. We aggregated this data for the Permian Basin and then analyzed the results to understand the optimal ways to filter the data and isolate gas flaring. The map to the left shows the detections from July and August 2019.
After comparing the outputs of this modeling with the state-level data, we can produce a near-real-time estimate of the gas flaring taking place in the Permian. The chart to the right shows the state-reported data compared with our estimate of Permian flaring. Our conclusion is that Permian venting and flaring grew following the Q1 decline and appears to be reaching record levels in August.This spike may be short-lived though, as relief is on the way and appears to be arriving earlier than expected. Kinder Morgan’s Gulf Coast Express (GCX) is a 2 Bcf/d natural gas pipeline designed to transport gas from the Permian Basin to Texas’s Agua Dulce Hub near Corpus Christi. From here, gas can be shipped to multiple locations, including Mexico and LNG terminals. The pipeline was originally proposed to enter service in October 2019, but it appears that work is running ahead of schedule, and the pipeline could be operational by mid-September. Daily pipeline gas flow data collected by Enverus suggests that line-pack on the pipeline began on August 8 when deliveries from El Paso to GCX began to appear on El Paso’s meter. Since August 8, El Paso has delivered an average of 229 MMcf/d to Gulf Coast Express, and delivered as much as 321 MMcf/d on August 18. With that takeaway capacity online, Enverus expects to see a decline in Permian flaring.