The combined effect of COVID-19 and an ongoing oil price war has ushered in one of the worst downturns for the energy industry in modern history. Yet, a bright side is shining through; flaring levels in the Permian Basin have fallen sharply and will continue to decline throughout the year, a Rystad Energy report shows.
The group’s preliminary estimate for the first quarter of 2020 shows an emerging downward trend in basinwide gas flaring. Rystad estimates that total gas flaring declined to 700 million ft3/D cubic feet per day in the first quarter of 2020, with 550 million ft3/D flared at the wellhead—the lowest quarterly flaring rate since the third quarter of 2018 (Fig. 1).
As asserted in previous estimates, wellhead flaring accounts for the major part of total flaring in the basin (more than 70%) since the beginning of last year. The Delaware sub-basin in Texas remains the largest contributor to total Permian wellhead flaring, with close to 300 million ft3/D as of first quarter 2020. Yet, as gross gas production in the Delaware continues to grow, driven by pure-gas activity in the Alpine High field, flaring intensity (the ratio of flared gas to total gas production) has declined substantially in the sub-basin, falling from the peak of 5.8% in the fourth quarter of 2017 to around 4.0% to 4.7% in the last 6 months.
On the New Mexico side of the basin, things are looking even better as the period of flaring intensity degradation seen in 2017 to 2018 is now in past. The Delaware in New Mexico has recently seen its flaring ratio significantly improve, declining from 4.7% in the fourth quarter of 2018 to 2.7% in the last 6 months.
Midland North’s flaring ratio is finally improving as well, and quite dramatically, after a period of several unplanned gas plant outages throughout the fourth quarter of 2018 and 2019. For first quarter 2020, Rystad estimates that only 3.1% of gas was flared in Midland North, which brings the basin—a basin with very well developed infrastructure—much closer to the preoutage flaring intensity observed from 2015 to 2017.
“The basinwide wellhead flaring ratio fell below 3.5% in the first quarter of 2020, and additional improvements are expected to materialize throughout the remainder of 2020,” said Artem Abramov, Rystad’s head of shale research. “This is especially true now, in this period of collapsing basinwide completion activity amid an oil price crash and prolonged price weakness.”
The most significant driver of wellhead flaring is completion activity, followed by gas production added from recent well vintages. Projects where gas is flared are typically more-recent developments exhibiting lagging gathering lines and other midstream infrastructure issues.
Permian activity remained relatively robust during the previous downturn (2015–2016), yet wellhead flaring declined by 35% between early 2015 and early 2017. This time around, even the Permian Basin is facing a rapid deceleration in fracturing activity as operators try to quickly balance degradation in operational cash flow with reduced capital expenditures. Therefore, Rystad says it expects a quick slowdown in total wellhead gas flaring throughout the remainder of this year of around 40%, from 550 million to 330 million ft3/D.
Even without the potential shut-ins expected in the second quarter of 2020, oil production is expected to begin declining from the end of the current quarter. Flaring will decline more quickly because of its strong correlation with new well counts. Rystad estimates all flaring and flaring-driven emission intensity metrics to improve materially for Permian exploration and production companies in 2020.
From the fourth quarter of 2018 until the third quarter of 2019, Permian wellhead flaring was generating 10 to 12 kg of CO2 equivalent per barrel of oil production. In the last 6 months, flaring-driven CO2 intensity has already dropped to 8–9 kg per barrel. Rystad said it expects to see emission intensity in the range of 5–6 kg of CO2 per barrel as soon as the fourth quarter of 2020.
“Such a low level of flaring has not been seen in the Permian since 2012,” Abramov said. “While the downturn introduces severe challenges for the overall economics of Permian producers, achieving outstanding emissions targets is at least one bright spot.”