Profligacy amid scarcity
Profligacy amid scarcity
The insanity of gas flaring during a global energy crisis
Ukraine is smouldering. The EU is paying a fortune to import LNG. Yet the global oil and gas industry is still flaring off as much gas as the EU buys from Russia each year. Plus ça change?
Some things never change. The energy world has been turned upside down by Russia’s invasion of Ukraine and European politicians have woken up to the urgent need to wean their economies off Russian gas. Yet the deplorably wasteful practice of routinely flaring off excess upstream gas at the well head is, sadly, still going strong.
As Europe contemplates the long and painful process of extricating itself from heavy dependence on Russian gas, it should come as a galvanising shock to learn that the global oil industry flared enough upstream gas in 2021 to replace Russian methane molecules in the European energy mix almost entirely.
New data from the World Bank reveals that worldwide gas flaring rose marginally to 143 billion cubic metres (Bcm) last year. That equates to roughly 93% of Europe’s gas purchases from Russia. Another way to look at it is that those 143 Bcm could have generated some 1,800 terawatt-hours (TWh) of electricity, almost two-thirds of the EU’s net domestic power generation, according to the World Bank.
If you add in the flaring of petroleum liquids and the venting and leaking of methane from oil and gas infrastructure, the amount of primary energy wasted by the oil industry comes to a staggering 264 Bcm of gas-equivalent — roughly 1.7 times Europe’s total Russian gas imports in 2021, or 7% of the entire world’s natural gas consumption.
That’s according to flare capture specialist Capterio, which analysed the data to put the sheer volume of waste into perspective. If priced at a conservative $7.50 per million British thermal units (MMBtu), gas flaring accounted for $47 billion of lost revenue. In Europe, gas is trading at several multiples of that, and in any case, the emissions damage is significant: flaring emitted one billion CO2-equivalent tonnes of greenhouse gas emissions last year.
“This waste is unacceptable, especially in today’s world of energy insecurity, sky-high energy prices and a global climate crisis,” — Capterio CEO Mark Davis
End flaring, alleviate scarcity
Of course, very little gas is flared in Europe, so ending the practice would not make much more gas available within this region. On a global basis, however, the net supply-demand balance would look quite different with 5–7% more upstream gas being brought to market.
Global gas markets were already tight before the EU set highly ambitious targets to replace Russian supplies with imports of liquefied natural gas (LNG). This is driving up spot prices and pitting European gas buyers against rivals in Asia, depriving parts of the developing world of gas.
A swift end to flaring would make more gas available in the world’s biggest oil provinces, which would lower natural gas prices in markets where the captured molecules are monetised. This would create pockets of very cheap (or negatively priced) gas in the Middle East, Central Asia, North and West Africa, and parts of North and South America.
To the extent these extra volumes are monetised within existing gas markets — either by increasing supplies to domestic consumers or boosting pipeline/LNG exports — the knock-on effect would be lower prices elsewhere.
Greater upstream supply in major LNG-exporting countries means cheaper feed gas. This improves margins for existing LNG producers, which would allow them to offer spot cargoes at more competitive rates to gain market share. Ultimately, this could translate into lower spot prices – potentially making incremental LNG purchases affordable in price-sensitive markets such as India and Pakistan, which are being priced out as Europe and China bid up the LNG market.
Ending flaring in the US would go some way towards ameliorating the impact of record US LNG exports on American consumers. Prices on US benchmark Henry Hub have spiked to multi-year highs, triggering renewed calls in some quarters to cap US LNG exports.
The US exported 100.2 Bcm of LNG in 2021 and flared 8.8 Bcm of gas. Capturing those volumes would almost certainly bring down US gas hub prices and reduce tensions between the US domestic economy and foreign policy priorities, such as maximising energy exports to allies in Europe and addressing the US-China trade deficit.
Russia: the bear in the room
Russia’s status as the world’s biggest gas flaring country by volume presents a big headache. Russia flared 25.4 Bcm in 2021, ahead of Iraq, Iran and the US (17.8, 17.4 and 8.8 Bcm, respectively). How can Russia end gas flaring if its main customer base – Europe – wants to buy less of its gas, not more?
Russian gas has nowhere else to go because existing pipelines flow west towards European markets. Without Europe as a willing buyer, Russia would have to mothball scores of gas-producing wells in western Siberia. Russia is sitting on a growing surplus of gas as Gazprom’s European exports fall, so capturing associated gas would only add to the glut. Russia is expanding its pipeline capacity to China, but this will take time.
The Western world wants to exclude Russian oil from the global market, but that is proving tricky as China, Brazil, India and other importers are lured to heavily discounted barrels shunned by Europe and its allies.
There is no clear answer to the question of how to end Russian gas flaring amid the geopolitical bifurcation of global energy markets – unless Russian oil production itself is comprehensively mothballed. Russia’s crude output rose 2.5% in 2021, which drove a 0.9% increase in flaring. While this indicates a -1.5% reduction in Russia’s flaring intensity, it illustrates the environmental benefits of excluding Russian oil from the market.
As Western oil companies divest from Russia en masse, there will be less transparency and scrutiny of environmental transgressions in the Russian oil patch. Mobilising capital into Russia to build infrastructure to capture associated gas volumes is trickier than ever under a blanket of Western sanctions. All of this adds an environmental justification to the West’s political movement to shrink Russia’s oil industry.
Paying lip service to morality
War in Ukraine and a global shortage of gas only add to the moral imperative to end gas flaring. Even in a well-supplied peacetime market, the practice is egregious.
There is no better measure of an industry’s sincerity to clean up its act than its performance on wasteful practices that harm both the environment and its own bottom line. Routine flaring of natural gas is the oil industry’s bête noire.
The dirty black plumes billowing endlessly from many thousands of flare stacks across five continents are now visible for all to see thanks to satellite monitoring technologies and data visualisation.
Yet the flares continue to boil the air and light up the night sky, offering a stark reminder of the yawning gap between the oil industry’s rhetoric on scope 1 emissions — the easiest to mitigate — and progress on the ground.
“The status quo is increasingly becoming untenable. Not delivering zero routine flaring — especially when it clearly could have been achieved, whilst making money, with proven technology — will negatively impact the industry’s license to operate.
“The oil and gas industry cannot afford to miss out on the opportunities from its own ‘low-hanging fruit’.” — Capterio CEO Mark Davis
That ‘fruit’ has gone unpicked for so long it is practically dying on the vine. Flaring volumes have plateaued over the last decade despite pledges from governments, oil companies and development institutions to end the practice of routine flaring by 2030.
Signatories to the World Bank’s Zero Routine Flaring by 2030 (ZRF) pact cover 70% of all gas flared globally, including five of the ten worst culprits by volume: Russia, Iraq, the US, Nigeria and Mexico.
Of these countries, only the US has reduced the flaring intensity of its oil. In order to hit the 2030 ZRF target, global flaring would have to fall by a daunting 44% every year this decade from a standing start.
Where is the political will?
It is a dispiriting state of affairs, and one made all the more galling by the fact that progress does not require any great technological breakthrough or even particularly large amounts of capital.
The missing ingredient is the political will and robust governance required to implement and enforce meaningful legislation that makes capturing waste gas less costly than flaring it. Since this is the industry’s own product, many off-the-shelf mitigation options would pay for themselves in just a few short years. Some offer months-long paybacks.
As ever, some countries are faring better than others. The US, Algeria and Nigeria achieved the fastest reductions in gross flaring volumes (down by 3.1, 1.0 and 0.6 Bcm, respectively) last year, but these gains were more than offset by alarming increases elsewhere, namely in Iraq, Mexico, Libya and Iran – which increased their aggregate flaring volumes by 8.8 Bcm in 2021.
There are meagre signs of progress. Since gas flaring is a function of oil production, the fact that crude output rose more quickly than flaring volumes (1.4% versus 0.6%, respectively) means the underling ‘flaring intensity’ of each barrel produced fell by 0.7% last year to 5.1 cubic metres per barrel (cm/b) – but this is an underwhelming achievement; the flaring intensity of oil production rose strongly over the previous three years to hit an all-time high in 2020.
The disparity in flaring intensity between the cleanest and dirtiest oil producers is mind-boggling. Venezuela’s rate of 37 cm/b is 157 times greater than that of Norway, according to Capterio – despite the troubled South American country achieving a 33% reduction in its flaring intensity, the quickest reduction of that metric by any country in 2021.
Flaring is everybody’s problem
It should come as no surprise that those countries with the highest flaring intensity tend to be the least stable, prone to conflict and with the weakest systems of governance. Venezuela, Syria and Yemen are among the worst performers, flaring more gas per barrel of oil produced than any other country.
This is not merely another developing world problem that rich countries can wash their hands of. The World Bank last year introduced a new metric, the Imported Flare Gas (IFG) Index, to highlight the flaring associated with crude oil imports.
This metric highlights the flaring consequences of certain crude imports and shares the responsibility for reducing flaring between exporters and importers. It is based on the premise that a country imports the flaring intensity of the country where its oil is produced.
Rich Western countries might have impeccably low gas flaring rates of their own, but they have among the highest ratings on the IFG index. Estonia, Australia and Switzerland are the three worst offenders because they import most of their oil from countries with high flaring intensities: Malaysia, Libya, Gabon and others. Greece, Italy and Spain all have higher IFG ratings than India or China. France, Germany and the Netherlands are all above the global IFG average too.
This underscores the pressing need for oil importers to face up to their role in perpetuating gas flaring in far-flung parts of the world that lack the means to address the problem. The time to act on flaring passed long ago, but it is never too late for wealthy nations to atone for past sins. Routine gas flaring is an eminently fixable problem, if only the world would try.
An earlier version of this article first appeared in Energy Monitor on 18th May 2022. Reproduced here with permission.
Very much like the framing of ascribing the flaring intensity to the importing nation. Has anyone done a similar look with regard to venting?