Pumpjacks operate in Perm in the Perm Basin in Midland, Texas, USA on Saturday, February 13, 2021.

Matthew Busch | Bloomberg via Getty Images

When a raging blizzard and freezing temperatures hit Texas last month, oil and gas giants responsible for producing and processing the lion’s share of the country’s reserves, including Exxon, Occidental, and Marathon Petroleum, provided production at oil wells and refineries across the board State a.

For many oil producers in the Permian Basin of West Texas and New Mexico, the shutdown has put upstream and downstream operations under pressure. Downstream, multiple refinery processes flickered during the shutdown and released air pollutants from the processing units. When the oil wells resumed there was a risk that on-site oil production would have to be lit or stopped until the broader energy market, including refining and power generation, stabilized. In fact, satellite imagery showed increased flaring at oil and gas production sites in the Permian Basin, according to the Environmental Defense Fund.

At Occidental, however, a decision was made to discontinue some operations.

“There have been some assets that have struggled to get back online,” said Vicki Hollub, CEO of Occidental, at a recent CNBC Evolve event that focused on energy innovation. “We could have put our production back online and simply flared the gas. We decided against it. We stopped production because we didn’t want to flare.”

The decisions made during the Texas power crisis are part of a broader debate with the oil and gas industry about flaring, the process of releasing greenhouse gas emissions through combustion that has long been a controversial topic for environmentalists and climate policy experts. The practice commonly used by oil and gas companies to relieve the pressure that builds up during oil production is responsible for the release of CO2 and methane into the atmosphere.

A more ambitious big oil goal

The problem that arises is a global one. According to the World Bank Group, global gas flares burn around 140 billion cubic meters of natural gas each year, emitting more than 300 million tons of CO2. Hundreds of companies, governments and oil companies around the world have joined the organization’s Zero Routine Flaring Initiative by 2030, which aims to eliminate all routine flares within the next decade. While flaring is often used in cases where there are safety concerns or maintenance issues, routine flaring means the flaring of gas associated with oil production.

Several major oil and gas companies, including Occidental, Chevron, and Shell, have signed the pact. Zubin Bamji, program manager of the World Bank’s Global Gas Flaring Reduction Partnership, said gas flare reduction is achievable for many of these companies and is, among other things, a “low hanging fruit” for reducing emissions.

Some experts say U.S. companies in particular need a more ambitious target to stop routine flaring. The World Bank Agreement mainly focuses on reducing emissions in countries that lack regulatory capacity and infrastructure. However, some experts say US companies can achieve this by 2025.

“We’re talking about a 100-year-old pool here in Texas,” said Colin Leyden, regulatory and legislative director for the Environmental Defense Fund. “2030 is working on the global framework, but there is a lack of domestic ambition here in the US.”

However, flaring often remains a cheaper alternative to getting the gas to market, and flaring often depends on the fundamentals of supply and demand.

Alternatives to flaring

According to Gunnar Schade, atmospheric researcher and associate professor at Texas A&M University who has written extensively on the subject, it is not in and of itself difficult to stop routine flaring by methods such as rewiring gas for electricity or internal purposes . The technology is there, it’s a question of whether companies want to make the investment and invest the money.

Occidental’s New Mexico operations now use a gas collection system that is tied to third-party capacity and pipeline supply agreements. According to Occidental, annual carbon dioxide equivalent (CO2e) flaring emissions were reduced by more than 60% in 2019 from what would otherwise have been used in other upstream oil and gas projects to reduce flaring, the company said in an annual climate report.

A recent report on flaring states, “When most of the associated gas goes on sale, the dilemma of how to handle it becomes largely controversial.”

Bringing natural gas from the Permian Basin to market is the industry’s preferred solution. However, the natural gas market has been characterized by oversupply and low prices for years, and for many companies the economic analysis does not suggest a significant change in electricity operations.

There are on-site solutions that could become scalable. Some alternatives include building pipelines to pump back gas for heat and power in businesses, or implementing vapor recovery systems that can collect vapors and reduce emissions.

“The most important thing is that stopping is connected with investment, since flaring is free, you don’t have to pay for it and the atmosphere is a free sewer,” said Schade.

Renewed focus on climate change

If natural gas prices were consistently higher, the flaring issue would not be as significant, Leyden says, but given the long-term low price prospect for natural gas, a new legal framework is needed to realign the incentives.

Flaring is currently legal, which means regulatory guidelines are needed that encourage the use of gas for other purposes. Some states are making progress. New Mexico recently started debating a bill to combat flaring and venting, while advocacy groups and lawmakers in Texas are due to discuss two bills aimed at practice. One of them would be a 25% tax on vented or ignited gas in oil production.

Typically, when flaring, the gas is burned down on a large tower or pile. It is often used when oil companies do not have facilities or markets for the leftover gas. While the practice is more environmentally friendly than venting, a process that releases natural gas directly into the atmosphere, it is still a major source of methane, CO2, and emissions of other problematic compounds that can have drastic effects on human health.

Technological advances over the years have streamlined the process of flaring and its efficiency, but organizations still say that the practice is responsible for a large portion of the emissions. According to the World Bank, the United States was among the five most flare-ups in the world between 2014 and 2018, after Russia, Iraq and Iran.

In recent years, oil giants have increased their focus on reducing emissions, including Exxon, which plans to cut methane emissions by 40% to 50% and flaring by 35% to 45% by 2025. British oil giant BP and Royal Dutch Shell outlined plans for net zero emissions by 2050. Ending routine flaring is part of those commitments, but companies now have to take the expensive steps to reshape their operations.

“There are a lot of different options, but the problem is that they all come at a cost,” Leyden said. “As long as flaring is an option due to a loose legal framework, these options will be difficult to enforce.”

Occidental was the first U.S. oil company not to sign a flare policy to the World Bank by 2030.

Texas energy crisis and new politics

In the midst of the Texas Crisis, companies struggled to source power generating sources such as natural gas, and at the same time continued to burn them as gas and electricity prices rose, baffling some consumers and industry critics.

“I can tell you we have flared up in the past, we also sometimes have to flare up when third-party equipment fails, but we try our best to minimize it,” Hollub said at the recent CNBC Evolve event.

Many oil and gas companies like Occidental are more sensitive to the environmental issues that are at the fore in investor efforts. The world’s largest money manager, BlackRock, requires companies in which it invests to disclose direct emissions. Earlier this year, President Biden re-acceded to the Paris Climate Agreement, calling on agencies to review and reintroduce the regulations that were rejected under the Trump administration.

“I’d much rather get us to do business, and that’s one of my big screams in this letter: We have to do it ourselves before the government does it for us,” BlackRock CEO Larry Fink said earlier in one CNBC interviewed this year after it released the company’s 2021 letter to CEOs calling for more corporate climate change disclosure.

“We had a lack of control over oil and gas,” said Leyden.

The Railroad Commission of Texas, which is responsible for the industry’s business but has failed to crack down on it in the past, took a closer look recently as investors and lawmakers pay more attention to the issue. The recent energy crisis could be a turning point for the self-regulatory approach in the state.

“The large amounts of flaring are a microcosm of what can result from self-regulation,” said Leyden. “The investment community is due by 2025. It has to be quick. 2030, that was a decade ago, and this is one of the easier things you can do from a political perspective.”

The extent of flaring in the Permian is significant. New markets – and costs like taxes on flaring or strict approval requirements for new wells – could encourage companies to look at the economics of flaring differently, combined with investor focus on ESG.

“If you have a policy that says we will not tolerate routine flaring, that you cannot bring an oil well online, that you cannot start pumping until you have the target for the gas, it will change economics in the midstream as well and increase the need for infrastructure investments, “Leyden said.

A 2019 analysis by Rice University’s Baker Institute found that if all of the Permian diverted or vented gas were captured and liquefied, a Q-Max LNG carrier (the largest carrier size in the world) could be filled every 10 days. The report added, “If this ship went to China and unloaded its cargo into a power plant, it could likely displace about 440,000 tons of coal, which is burned to generate electricity.”

“Any company that operates with flares is now under pressure … not just from shareholders and employees, but around the world to reduce the flare and I don’t see that focus and pressure lessening” said Amy Chronis, director of Deloitte’s US oil, gas and chemicals sectors.