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Increased Flaring in Texas Oil Patch Highlights ESG Pressure's Limitations

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The Resurgence of Flaring in the Texas Oil Patch and the Limitations of ESG Pressure

Flaring, the practice of burning off excess gas in the oil industry, is experiencing a resurgence in the Permian Basin, the largest oilfield in the United States. Producers, including Diamondback Energy and Permian Resources, have increased flaring despite previous efforts to curb the practice. While flaring remains below historic highs, this upward trend highlights the limitations of relying solely on investor pressure and voluntary initiatives to address climate change. Flaring is a significant source of carbon dioxide emissions and contributes to global warming. The International Energy Agency estimates that flaring added approximately 500 megatons of carbon dioxide equivalent to the atmosphere in 2022. While New Mexico is implementing restrictions on flaring, there are currently no meaningful limits in place on the Texas side of the Permian Basin. The US Environmental Protection Agency is considering nationwide restrictions, but a rule is not expected for several years. The increase in flaring in the Permian Basin is evident in the data. As a share of gas produced, flaring rose by about 9% in the year ending June 30 compared to the previous 12 months. This reversal of previous declines highlights the need for stronger regulatory measures. While some flaring is unavoidable due to malfunctions or equipment maintenance, companies can significantly reduce flaring by waiting for gas infrastructure to be available before bringing new wells online. Voluntary industry-led efforts have shown progress, with many large oil companies taking steps to curtail flaring. However, recent increases in flaring by companies like Diamondback Energy demonstrate the challenges in relying solely on voluntary measures. To address the issue effectively, stronger regulations are needed. The Environmental Defense Fund and other environmental advocates argue for the adoption of proposed rules to restrict certain types of flaring nationwide. While voluntary efforts are commendable, they should not replace mandatory regulations that establish minimum standards for compliance. The Railroad Commission of Texas, the state oil regulator, has the authority to deny permission to flare but rarely exercises this power. Strengthening regulations and implementing stricter controls on flaring practices are necessary to protect the environment and mitigate the impact of flaring on climate change.

A Hot Take on the Rising Flaring Practices in the Texas Oil Patch

The resurgence of flaring in the Permian Basin, led by companies such as Diamondback Energy and Permian Resources, poses significant implications for new businesses in the oil industry. This trend not only jeopardizes the environment but also highlights the shortcomings of relying solely on ESG (Environmental, Social, and Governance) pressure to mitigate climate change.

The Impact on New Businesses

New businesses, particularly those with a focus on sustainability, may find it challenging to navigate this landscape. The rise in flaring practices could potentially tarnish the industry's reputation, making it difficult for these businesses to secure investments and partnerships. Furthermore, the lack of robust regulations on flaring could lead to an uneven playing field, where companies disregarding environmental concerns gain an unfair advantage.

The Need for Stronger Regulations

The recent increase in flaring underscores the necessity for more stringent regulations. While voluntary efforts by large oil companies have made some progress, they are not enough. The Environmental Defense Fund's call for nationwide restrictions on flaring is a step in the right direction. Implementing such rules could help establish minimum standards for compliance, ensuring a more level playing field for all businesses in the industry.
In conclusion, the resurgence of flaring in the Texas oil patch presents both challenges and opportunities. It serves as a wake-up call for the industry to strengthen regulations and commit to more sustainable practices. New businesses that can navigate this landscape and champion sustainability will be well-positioned to thrive in the evolving oil industry.
Story First Published at: https://financialpost.com/pmn/business-pmn/flaring-ticks-up-in-texas-oil-patch-showing-limits-of-esg-pressure
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