Solving Our Natural Gas Flaring Crisis
Waste Not, Want Not
Not all oil plays are created equal.
Let's be honest here: It really shouldn't come as a shock to you to learn that our natural gas flaring problems are concentrated in the newer tight oil plays — the same ones that have helped transform the United States' energy production over the last decade.
Understand that wasting our precious natural gas resources isn't some new phenomenon that sprung up alongside the tight oil boom. I mentioned last month that this practice has been place for well over a century, with one egregious example of wasted natural gas taking place as far back as the 1880s.
So just how big has the problem become?
Maybe a better question to ask is how you can take advantage of the solution to the gas-flaring crisis.
The answer may be more profitable than you can ever imagine...
Waste Not, Want Not
Globally speaking, we're talking about a lot of natural gas that is being vented. The World Bank has suggested that as much as 140 billion cubic meters is burned off annually, causing in excess of 300 million tons of CO2 emissions.
Just last week, oil companies and officials from nine countries agreed to kick-start an initiative to end natural gas flaring — in its entirety — by 2030.
Although I'm cautiously optimistic about any initiatives from Washington that boast such a goal, let's set our sights a bit more locally for today.
After all, there's plenty concern over flaring in the Lower 48.
And the fact that North Dakota flared over one-third of its natural gas production in 2011 should give you an idea of the kind of waste we're talking about. That year, the state produced only about 157 billion cubic feet of natural gas.
Over the next two years, gross withdrawals of natural gas in the state increased 120%. But let's take a closer look at this production, a breakdown of which you can see below:
Click Table to Enlarge
Notice anything peculiar? How about the fact that natural gas production from oil wells dropped by a sharp 76% between 2008 and 2013... or the fact that the amount of natural gas vented and flared rose by 300%?
Between 1981 and 2005, North Dakota was venting and flaring between 2 to 3 billion cubic feet annually. By 2013, that number was 102.8 billion cubic feet.
As I've said before, this accounts for roughly 40% of the total gas flared inside the United States.
Let's be perfectly clear: This is going to change.
And it's creating a veritable flaring fortune right before your eyes.
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The Gas Flaring Fortune at Your Fingertips
A billion dollars here, a billion dollars there... eventually that fortune in gas being vented off at the wellhead will add up to a lot of money.
At last count, the Peace Garden State was burning up natural gas at an unsettling rate of $100 million per month.
Yet despite the interest to reduce gas flaring globally and the regulations being set up in North Dakota, there are two things that hold true for investors:
First and foremost, keep in mind that nobody wants to flare natural gas.
I know it's difficult for the average person to see oil and gas companies as anything more than pure evil, hell-bent on stealing every last cent while ravaging the environment. To them, every cubic foot of natural gas burned is a little bit of cash out of their pockets.
Clearly these producers want to market their product, and the only obstacle in their way right now is a severe lack of infrastructure — it's that simple.
It's even easier to understand landowners' anti-flaring stance. The practice takes money directly out of their pockets from lost royalties.
And this leads us to the second part of the equation for individual investors. That is, we can fully expect both oil companies and government officials to address this issue immediately. North Dakota has already set a target to flare just 10% of its gas produced by 2020, eventually lowering the threshold to 5%.
As you might expect, one of the best ways to achieve these goals is through infrastructure improvements.
And therein, dear reader, lies your opportunity.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
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