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BP Is Burning a Lot of Gas in Permian as Output Exceeds Pipe

BP Plc’s recently-bought BHP Group Ltd. assets in the Permian Basin are among the shale field’s worst offenders for burning off excess gas.

The BHP assets burn or vent just over 15% of the gas they produce, the second most in the Permian, according to Rystad Energy, an Oslo-based consultant. That’s about three times the average rate over the six months that ended March 31. BP agreed to buy the assets for $10.5 billion last year but only assumed operational control in March.

For BP to attain its self-stated goal of reducing flaring globally, the company may be forced to put some drilling on hold while it waits for more pipelines to be built, according to Artem Abramov, head of shale research at Rystad. The next significant conduit scheduled to begin operations in the region is Kinder Morgan Inc.’s Gulf Coast Express in October.

“I think BP will definitely follow the socially responsible path of Permian development,” Abramov said. “In practice, this will probably result in delayed Permian expansion.”

Flaring is the practice of burning off gas that’s too far from population and manufacturing centers to be sold. The process, which releases carbon dioxide into the atmosphere, has reached record levels as the Permian boom leads to escalating output of gas as a byproduct from oil wells.

Pipeline construction has lagged the pace of drilling, which means much of the gas has been stranded in remote West Texas, leading companies to flare the fuel or pay someone to take it off their hands.

Going To Zero

Gas traded at the Waha hub in the heart of the Permian region has fallen 66% this year and has actually dipped into negative territory at times in every month since the end of February.

BP is “committed to reducing our flaring in the Permian Basin,” spokesman Jason Ryan said by email. “Since BPX Energy began operating our newly acquired assets in March of this year, we have started constructing centralized facilities which, combined with some of our other emissions-reduction efforts, will reduce routine flaring.”

The British oil giant has committed to reducing gas wastage across all operations with a target of zero routine flaring by 2030.

Globally, gas flaring rose by 3% last year, led by a 48% jump in the U.S. stemming from swelling oil production from shale fields, the World Bank said on Wednesday. The total amount of gas burned off as waste worldwide in 2018 would have been enough to supply all of Central and South America.

Plant Outages

SM Energy Co., the shale driller that’s less than 1/100th of BP’s market value, is the worst offender in terms of the proportion of gas output that’s flared, Rystad’s figures showed.

However, SM spokeswoman Jennifer Samuels said that may be misleading, given that the company is one of the smallest overall gas producers in the region, which means the total amount burned off by the Denver-based driller is minute.

In addition, some local gas-processing facilities were out of commission in late 2018 and early his year, which forced SM to flare some gas. Those plants now are back in service and the company is no longer burning excess gas, she said.

“We are very conscientious of minimizing flaring,” Samuels said in an email.

Pipeline scarcity isn’t the only impetus for flaring. The practice is routine during the first two weeks of a well’s life when saltwater, mud and gas bubble to the surface before the oil begins to flow. As a result, companies that are drilling lots of wells typically flare more than others. Also, explorers in fields with higher concentrations of gas relative to crude will burn more.

All the companies in the above chart flare less than the Permian average of 5.1% of overall gas output, according to Rystad.
Source: Bloomberg

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