Flaring has many costs, few excuses

Guest column by Bob LeResche

— April 26, 2013

Back in the 1960’s and early ‘70’s Alaska’s silty Cook Inlet put on quite a show.  I would sit on the cabin porch in the Kenai National Moose Refuge fifty miles away and gaze at the northwest sky, which glowed golden on cloudy nights—like New York City was just over the hill.  Those flying up the Inlet into Anchorage on starry winter nights were treated to a fairy land—fourteen offshore oil production platforms flaring tens of billions of cubic feet of associated natural gas against the snow-covered volcanoes lining the west shore.

The flares might have been pretty from a distance (they were), but they were costing Alaskans lots of money in royalties and taxes, lots of job opportunities and significant environmental damage.

In 1971, the Alaska Oil and Gas Conservation Commission, after many hearings and a lawsuit, prohibited all flaring in excess of that required for safety, and required the associated gas produced be either taken ashore and marketed or re-injected and stored for future production.  Producers were forced to follow the new mandate, and new industries, new jobs, and enhanced domestic energy supplies resulted.  Air quality improved.

The Alaska Commission took this action under the “prevention of waste” portion of their mandate, and the rule has applied ever since to all gas produced in the state, including the huge stranded gas reserves at Prudhoe Bay.

The Wyoming Oil and Gas Conservation Commission (WOGCC) also have a duty to prevent waste of our state’s resources.  Chapter 2 of the Commission’s statute states explicitly WOGCC’s duty “to prevent waste and to conserve oil and gas in the State of Wyoming…”

Nevertheless, wasteful flaring is fast becoming a problem in Wyoming, as new deep horizontal drilling/fracking production techniques bring new oil production online at a time when the price of associated gas is very low.  Producers in Wyoming are today making the same arguments Cook Inlet producers made in 1971.   It’s a classic argument over costs, with industry arguing to minimize their costs of conserving the gas and preserving environmental quality.  It’s very cheap to just burn it, but more expensive to re-inject it, build a pipeline or find a market.  Minimizing industry’s costs requires “externalizing” those costs to others—the state treasury, school children, private mineral owners, and downwind neighbors.

The WOGCC needs to deal with this problem in a proactive and aggressive manner to protect both the financial and environmental interests of Wyomingites.

Environmental costs of wasteful flaring can run the gamut from quality of life irritants to potentially deadly air pollution, depending on location and operation of the flares and constituents and treatment of the flare stream.

A flare near one’s home is not a nice thing.  Bright all night, sometimes smelly, sometimes smoky, sometimes loud.  Worse yet, a “dirty” flare can be hazardous to one’s health; causing headaches, asthma and bronchitis.  Flares can emit a cocktail of poisonous chemicals ranging from nitrogen dioxides and suphur dioxides to volative organic compounds like benzene, toluene, xylene and hydrogen sulfide and carcinogens like benzapyrene and dioxin.  Emissions from flares also can cause acid deposition, which can damage nearby water sources, soils and vegetation.

Some flares are relatively benign, others may be dangerously toxic.  But at best, they all add hydrocarbon combustion byproducts to the air, contributing to climate change with no offsetting benefits.

One thing that can be explicitly calculated is the costs to government and to private mineral owners deprived of the cash value of their gas, and the costs to the beneficiaries of the revenue stream that is cut off when gas is discarded through a flare.

Every cubic foot of natural gas produced and sold contributes to funding Wyoming’s schools, our local governments, our Permanent Mineral Trust Fund and even our highways.  Every cubic foot produced from private mineral estate contributes cash royalty to the mineral owner.  Gas produced and flared because it is inconvenient or uneconomic in the short term for the producer to market or re-inject, contributes nothing to schools, local governments, our Mineral Trust Fund, highways, or the mineral estate owner.  The producer has removed it from the ground—severed it from the state’s non-renewable store of wealth—and thrown it away, but not paid for it.

As of March 12 this year, there were 64 active approved Well Flaring Authorizations from the WOGCC, including nine state wells, nine federal wells, and 46 “fee” wells on private mineral estate.

Under conservative assumptions, these authorizations (not counting any extensions, which are sure to follow) will cost private landowners alone $1,726,000 in unpaid royalties.  The state will lose $350,000 in unpaid state royalties and our share of federal royalties, the state will lose $723,000 in severance taxes not paid on flared gas, and the state and local governments will lose $757,000 in ad valorem taxes also not paid on flared gas.

Thus, private landowners are out close to $2 million dollars, and the state will never see $1,830,000 that would otherwise support schools, roads, local governments and our permanent fund.  Up in smoke, for the convenience of oil producers.  And as oil production ramps up, as it is doing right now, we will all fall further and further behind.

The governor, the legislature and the WOGCC need to re-examine the commission’s responsibilities to prevent waste and to conserve our oil and gas resources, and do something to capture the value of all produced gas, and to minimize air pollution.

Bob LeResche is the vice-chairman of the Powder River Basin Resource Council.

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