Energy-industry analysts Rystad Energy say they expect natural gas production in the west-Texan Permian Basin to rebound quickly this year, but caution that reductions in key pipeline investments in the wake of the CCP virus crisis could result in increased flaring of natural gas from 2023.
In their calculations, Rystad assumed a price for West Texas Intermediate (WTI) crude of $45 to $50, which would mean substantial recovery in the basin by September and record production levels by late 2021.
“In a $45-$50 WTI world, there will be a need for new gas takeaway projects from the Permian as early as 2023-2024,” said Rystad Energy’s head of shale research Artem Abramov in a press release. “If these projects are not approved early enough, the basin might end up with another period of degradation in local differentials and potentially increased gas flaring.”
Flaring occurs when excess gas is fired in a controlled manner to regulate borehole pressures—or to combust natural gas and associated products where suitable infrastructure for its capture, transportation, and sale are not available.
If such gas is not flared but vented to the atmosphere, it acts as a greenhouse gas with a warming potential up to 36 times greater than carbon dioxide, according to the Environmental Protection Agency.
Cautious Pipeline Investment Could Backfire
According to Rystad Energy, midstream gas companies either maintain or have been forced to adopt conservative investment philosophies, such that any new pipelines are likely to be approved too late to allow them to service burgeoning demand in the coming years.
The CCP (Chinese Communist Party) virus crisis and the resulting reduction in energy demand have created an uncertain environment for gas infrastructure investment, and cash-strapped oil and gas producers have slashed development, gasfield, and workforce costs in response.
In addition, oil and gas pipelines have faced considerable resistance in recent months, further dampening industry sentiment.
Environmental groups such as the Sierra Club heralded a “historic victory” when the Atlantic Coast Pipeline was cancelled on July 5—despite the project’s getting the green light from the U.S. Supreme Court in June. One of the project’s developers, Duke Energy, said in a statement that the project would not be continued due to the “unacceptable layer of uncertainty and anticipated delays” faced by Duke and its project partner, Dominion Energy.
“If anyone still had questions about whether or not the era of fracked gas was over, this should answer them,” said Sierra Club Executive Director Michael Brune in a statement. “Duke and Dominion did not decide to cancel the Atlantic Coast Pipeline—the people and frontline organizations that led this fight for years forced them into walking away.”
Pipeline Cancelations Harm Environment
A recently canceled gas pipeline, the Northeast Supply Enhancement (NESE) Project, was proposed to improve gas supply to domestic and industrial customers in New York and New Jersey. On May 15, however, the two states again rejected the proposal, suggesting instead that natural gas requirements should be met by present infrastructure.
A life cycle analysis (pdf) was carried out in 2019 for the National Grid on the project by M.J. Bradley & Associates (MJB&A). The study found that for the period 2020 to 2030, the NESE would have lowered net greenhouse gas emissions when compared with having the corresponding demand met by heating oil and electricity.
According to the Energy Information Administration, up to a quarter of New York’s homes are heated with fuel oil.
The study said that the NESE could have resulted in emission reductions as high as 38 percent, with monetized benefits to society calculated at up to $262 million over the 10 years.
“In addition to reducing life cycle GHG emissions,” the report stated, “natural gas supplied by NESE reduces nitrogen oxide, sulfur dioxide, and particulate matter emissions in New York City and on Long Island compared to using electricity and heating oil to meet the same demand.”
Project developer Williams Cos. expressed disappointment with New York and New Jersey’s decision to deny the NESE permits. The company will not refile at this time, it said.
“The decision to pause this important infrastructure project is unfortunate for the region as the design and construction would have generated valuable economic activity in Pennsylvania, New Jersey and New York,” the company said in a statement, “and would have directly and indirectly supported more than 3,000 jobs during the construction period.”