Flare gas regulation creates challengesa��and opportunitiesa��for oil and gas companies
With growth, comes growing painsa��and increased scrutiny for fracking. But some companies are adjusting and profiting as a result.
With the spectacular rise of hydraulic fracturing in the U.S., it was inevitable that concerns about the effects of the process would arise. The Wall Street Journal recently reported that 1 in 20 Americans now live within a mile of a fracking site. One of the most hotly contested issues surrounding fracking involves air emissions resulting from the flaring of natural gas at new wells.
In April 2012, the U.S. Environmental Protection Agency (EPA) issued its first-ever, federal rules for fracking wells, requiring that companies fully phase in control measures to capture targeted emissions by January 2015. These control measures are called reduced emission completions (RECs), or a�?green completions.a�? Green completions primarily involve using portable equipment to capture and separate the mixed gases, liquids, and other substances that flow from new wells. This takes place primarily early on, during the a�?flow backa�? period, when fracking chemicals and water injected into the ground return to the surface along with newly-released gas. The captured natural gas can then be re-injected, used on-site, or sold.
Two states, Colorado and Wyoming, already require control measures.A�Nonetheless, states and local communities in Colorado, Pennsylvania, New York, and Ohio have continued to push for even greater oversight and regulation through lawsuits and ballot measures. And the trend is likely to continue.
Even in a a�?pro-drillinga�? state like North Dakota, where the Bakken and Three Forks shale formations spurred record production highs this year, local residents and newspapers are calling for a harder line on natural gas flaring. Roughly 29% of all North Dakota natural gas is flared, with volumes having doubled over the past two years. In a surprising twist, some North Dakota landowners have actually filed class action suits against oil companies, seeking millions of dollars in allegedly lost royalties due to the flaring rather than capturing of natural gas during production.
Historically, industry groups such as the American Petroleum Institute (API) have resisted flare gas regulation, citing infrastructure, equipment supply and cost issues. The infrastructure for bringing recaptured natural gas into the power grid is often lacking, particularly in remote areas. However, green completions using portable processing equipment can resolve the infrastructure problem. Nonetheless, the API raised concerns about the equipment availability should new rules be phased in too quickly. APIa��s greatest concern focused on the cost of green completions, which it initially estimated at $180,000 per well.
Other organizations argue that green completions are neither complex, nor expensive. Both the EPA and the Natural Resource Defense Council (NRDC) point out that green completions rely on readily available, validated technologies that are already widely deployed, and which offset the cost of compliance. NRDCa��s Leaking Profits report stated that green completions and other pollution control measures could increase industry revenues by up to $2 billion per year through recovered natural gas.A� Similarly, a recent Ceres report, Flaring Up, estimated the value of flared gas in North Dakota at $1.2 billion for 2012a��about $3.6 million per day. These groups also note that in the years after standards were implemented in Wyoming and Colorado, drilling did not slowa��in fact, Colorado drilling permits more than doubled.
Companies finding the silver lining
But ita��s not just environmentally-oriented groups making these claims. According to FBR Capital Markets analyst Benjamin Salisbury, the EPA rule struck a balance: a�?Given sufficient ramp-up time, the cost of green completions is expected to be manageable or even positive net of revenue from selling captured methane.a�?
And when the EPA rules were announced, Bloomberg News found several major companies with green completion systems in place that considered them a�?both practical and profitable.a�?A� Mark Boling, President of Southwestern Energya��s V+ Development Division, stated, a�?Reduced emissions completions in our wells dona��t cost us any more than just venting the gas into the atmosphere.a�?A� Southwesterna��s initial cost was $20,000 per well, but they have now cut costs to zero. Boling added that even at $2 per million BTUs, a�?wea��re making money.a�?
Likewise, a spokesman from Devon Energy, which has used green completions for more than seven years, said, a�?Wea��re capturing value that would otherwise be lost.A� It makes good economic sense for us.a�? EFD reports based on input from Devon found that the rental cost for the equipment was roughly $1,000 per day, with a conservative net value of gas saved per well of $50,000.
Completing the efficiency circle
Several companies are taking these efficiencies further, using captured natural gas, or a�?field gas,a�? for localized, on-site power generation to cut costs and emissions even further. Apache, the Houston-based oil and gas company, is exploring this option. Apache found that the industry used more than 700 million gallons of diesel for hydraulic fracturing in 2012, at a cost of around $2.38 billion. Switching to field gas, the industry could cut its fuel costs by 70 percent, or about $1.67 billion, the company estimates.
And companies are lining up to make this switch possible. Mark Wald, owner of the Blaise Energy, powers North Dakota well sites. Blaise originally delivered power from generators back into the power grid, but found it was easier and cheaper to power well sites directly. Wald said many of the wells are in remote, off-grid areas and use diesel-powered generators to run the sites 24 hours a day. Swapping in natural gas already produced on site rather than hauling in diesel makes more sense. Wald said oil companies that made the switch experience save up to $25,000 per month in the cost of diesel fuel alone for a single well pad.
Blaise has 25 operational sites and continues to add more units all the time. The company is also building bigger generators to keep up with the demand of multi-well driling on well pads. Wald said it takes 100 to 150 kilowatts to run a typical single well pad, and 250 to 450 kilowatts to run multi-well sites.
 Wall Street Journal
 United States Environmental Protection Agency
 Michael Economides, a�?Commentary: Oil production in North Dakota keeps gaining, but increased flaring threatens regulatory action,a�?
FuelFix, September 17, 2013.
 Michael L. Krancer, Margaret Anne Hill, Law360, a�?Gas Flaring Suits Could Advance Infrastructurea��Or Nota�?, November 14, 2013:
 Jennifer A. Dloughy, FuelFix, a�?EPA gives industry breathing room on anti-pollution rule,a�? April 18, 2012:
 Jim Efstathiou, Bloomberg News, a�?Drillers Say Costs Manageable From Pending Gas Emissions Rule,a�? April 17, 2012.
 Rachael Bunzey, Energy in Depth, a�?Natural Gas and Green Completion in a Nut Shell,a�? November 26, 2012.
 Jessica Holdman, Bismarck Tribune, a�?Companies work to reduce flaringa�?, October 27, 2013.