Country
Assessment
The US natural gas market is highly liquid and gas infrastructure is vast. Most of the transport pipeline and storage infrastructure operate as regulated open access facilities. Federal and state regulators share responsibility in licensing midstream and downstream infrastructure and regulating open access (for example, setting pipeline tariffs). Pipelines that cross state boundaries are subject to the oversight of the Federal Energy Regulatory Commission. Intrastate facilities are regulated by state regulators. Typically, independent midstream companies develop pipeline, processing, and storage facilities when they see an arbitrage opportunity to connect new production to consumers. Sufficient numbers of shippers or users must sign up for new capacity for midstream companies to justify investment. If midstream companies are not interested, it may be necessary for upstream companies, especially in offshore, to invest in pipelines. Delays in midstream infrastructure development have been a key reason for increased flaring in onshore upstream operations (see the case studies on Colorado, North Dakota, and Texas). The policy of the Federal Energy Regulatory Commission for analyzing GHG emissions associated with gas pipeline projects has been uncertain since about 2016. Arguments for including emissions from upstream (oil and gas production activities that supply the gas) and downstream (use of gas carried by the pipeline such as power generation) in the commission’s review of pipeline applications have led to court cases and disagreements among commissioners. In early 2021, the Federal Energy Regulatory Commission, for the first time, considered GHG emissions associated with pipeline construction and operation during its review of a pipeline. This change in the Federal Energy Regulatory Commission’s pipeline approval criteria may have unintended consequences by delaying pipeline development and causing increased flaring or venting of associated gas.
For a description of the US natural gas market and infrastructure development, see section 24 of the case study on US federal offshore production. For onshore operations, the BLM’s proposed waste minimization plan (see section 11 of this case study) was intended to guide operators to work with midstream companies to identify sufficient pipeline and processing capacity near the planned drilling site so that associated gas can be captured from the first day of production. The previous US administration rescinded this requirement. The current one may reintroduce it or something similar.
Per NDIC Order 24665, 2014 , operators must submit signed affidavits to the NDIC when applying for a drilling permit to prove that they have communicated their gas capture plans with midstream companies. Ideally, this procedure would prevent drilling before sufficient midstream capacity is available. The NDIC envisions separate semi-annual meetings with gas gathering companies and operators that had repeatedly failed to meet gas capture goals. The NDIC considers timely communication among producers, midstream companies, and the NDIC essential to coordinate upstream and midstream development and reduce flaring. (Also see section 24 of the case study on US federal onshore production.)
The primary reason for flaring in the Permian Basin has been the lack of natural gas pipeline capacity to transport gas to markets. Several natural gas pipelines have been built or are under construction to transport gas to markets, including LNG facilities. In the meantime, because the impact of gas sales on overall well economics has been limited, the RRC appears unlikely to restrict oil production to reduce flaring. For example, in May 2020, the RRC rejected a proposal to cut oil production by 20 percent in a 2 to 1 vote. The split decision was based on the expectation that the issue would resolve itself once the necessary infrastructure was built. However, the RRC’s new requirement of more detailed economic justifications before approving flaring exceptions may change the current situation. As highlighted in the Texas Natural Resources Code, preventing the waste of the state’s natural resources is attracting attention. Some Permian Basin producers, mainly small ones, argue that delaying well completions or reducing oil production rates while waiting for sufficient gas takeaway capacity will lead to an immediate loss in income that far exceeds any future revenue increase from gas sales. Major producers in the Permian Basin treat gas takeaway capacity as a manageable constraint that involves ensuring that adequate takeaway infrastructure is in place before bringing a well online and being willing to shut in a well until takeaway capacity is secure. Ongoing consolidation among operators is reinforcing this trend.