MAJOR INVESTMENT INSTITUTIONS CALL ON TEXAS TO BAN ROUTINE BURNING OF NATURAL GAS FROM SHALE FIELDS

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4 september 2020

Investment Giants Urge Texas to End Most Natural Gas Flaring

Kevin Crowley, Yahoo Finance, September 4, 2020

(Bloomberg) -- Investors managing more than $2 trillion are calling on Texas regulators to ban the routine burning of natural gas from shale fields, arguing that the energy industry hasn’t moved quickly enough to curb the controversial practice.

AllianceBernstein, California State Teachers’ Retirement System and Legal & General Investment Management said they support eliminating gas flaring by 2025, according to a letter to the Texas Railroad Commission, which oversees oil and gas in the state. All three investors have been vocal on environmental issues before, but it’s the first time large institutional investors have taken such a public stance to the Texas regulator.

“Actions of leading operators demonstrate the financial and technical viability of ending routine flaring,” the fund managers said in the letter, which was seen by Bloomberg. “It is clear, however, that voluntary actions alone have been insufficient to eliminate routine flaring industry-wide.”

Investors and environmentalists are increasingly drawing attention to flaring because of its wastefulness and contribution to climate change. Flaring is utilized around the world as a way to deal with gas that producers can’t -- or don’t want to -- transport or store. Much of what’s burned, especially in the shale fields of Texas, is so-called associated gas coming from oil wells.

The sheer abundance of gas in the Permian Basin of West Texas and New Mexico means local prices for the fossil fuel are often so low that it’s cheaper for shale operators to burn it rather than pay for pipeline connections and storage. Last year the Permian flared enough gas to supply 5 million U.S. homes, according to Oslo-based Rystad Energy.

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Related: Permian’s Gas-Flaring Is Much Worse Than Previously Thought
The Texas Railroad Commission has come under attack for allowing companies to effectively flare at will over the past decade as shale production boomed and helped make the U.S. the world’s top oil producer. The commission allows companies to flare during the start-up of wells and during emergencies. It also issues waivers that can be utilized right through the early and most productive phase of a shale well’s operation.

After more than a year of public pressure, the commission recently proposed reducing the amount of flaring time allowed under some waivers and requiring operators to provide information on why they need to flare, but it set no targets and resisted calls for an outright ban. Lower oil production due to the Covid-19 pandemic has meant flaring rates have dropped significantly this year, the commission said in a statement last month.

“Strong and effective regulatory action -- beyond initial steps to improve data gathering and transparency -- is essential to build stakeholder confidence and solve this challenge across industry,” the investors said in the letter, which is part of the commission’s public consultation.

The commission “has been taking steps to further reduce flaring” in its recent proposals, spokesman Andrew Keese said in an emailed statement. The changes are “within parameters of existing rules,” he said.

LGIM, the U.K.’s biggest asset manager, supports the role of gas in the transition to cleaner energy sources but the industry “must get hold of its emissions challenges,” said John Hoeppner, head of the firm’s U.S. stewardship and sustainable investment unit.

The Railroad Commission had a “hands-off policy” on flaring for too long, he said. The letter aims to establish a common goal that companies, regulators and investors can rally around and help solve the problem, Hoeppner said. In May, LGIM said it would oppose the re-election of Darren Woods as Exxon Mobil Corp. chairman over what it called a lack of ambition on tackling climate change.

LGIM has about $1.6 trillion of assets under management. AllianceBernstein oversees roughly $600 billion and CalSTRS manages more than $200 billion

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[4C Comment by Piper Hollier:

A ban on flaring would have to be combined with a ban on venting, since unburned methane is a much more powerful greenhouse gas than the CO2 that results from flaring.

And of course there would have to be careful monitoring and adequate sanctions when there are violations of either ban.

But if all of the above can be implemented, it puts a major kink in the way that fracking is being done in TX, increasing costs for an industry that is already financially marginal.

Open discussion of the issues involved may lead to bans on flaring and venting in OK, PA, and the Dakotas as well.

The region in northwest TX where fracking is rampant is also a prime area for wind power development. Unfortunately, the oil/gas lobby has thus far succeeded in blocking the development of power transmission infrastructure that would be needed to bring wind power to population centers in the Houston and Dallas metro areas. Interconnects between the TX grid and other large regional grids are also badly needed to support further development of renewables.
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