Gas production in Europe has expanded as Russia has emerged as the custodian of one of the largest gas reserves in the world. However, it is revealed that a large chunk of the gas produced does not ultimately go to the market and gets wasted during the process of fracking. The same is happening in the U.S. where, according to a recent report by Ceres, nearly 30 percent of North Dakota gas is currently being flared each month as a byproduct of oil production.

Gas Flaring – A Costly Waste of Gas [ANALYSIS]

Magnitude of the gas flaring issue

The European Bank for Reconstruction and Development (EBRD) estimated that global gas flaring amounts to 134 billion cubic meters (bcm) or 4.7 trillion cubic feet (tcf) which is equivalent to 4 percent of the global production of gas. If all gas flared in 2011 had been sold, it would have added $50 billion to industry sales, according to the EBRD.

In North Dakota, in May 2013 alone, producers flared 266,000 Mcf of natural gas each day, which represents roughly $3.6 million in lost revenue per day at market rates.

Gas flaring is not only a significant waste of a useful energy resource, but it also accounts for some 360 million tons of greenhouse gas emissions globally. It contributes more than 400 million tons per year of CO2 emissions.

Major contributors to global gas flaring

EBRD revealed satellite data according to which ‘over 40 bcm of associated gas – or about 30 per cent of global flaring – were flared in Europe and Central Asia in 2010, which amounts to some  100 million tons of carbon dioxide emissions – roughly equivalent to the annual emissions of some 20 million cars.’ Azerbaijan, Kazakhstan, Russia and Turkmenistan are among the four countries with the greatest gas flaring issues.

Figure 1: Country-wise Contribution to Global Gas Flaring in 2011

Source: Bloomberg

Source: Bloomberg

Trends in gas flaring

Gas flaring numbers are directly proportional to the level of oil production as it is a by-product of the process of oil fracking. Global gas flaring has reduced from 162 bcf in 2006 to 140 bcf in 2011. However, this number is still way above optimum levels.

The trend in the major gas flaring contributing countries can be seen in the figure below.

Figure 2: Gas Flaring Trends in Top Gas Flaring Areas

Source: Bloomberg
Source: Bloomberg

The growth of unconventional sources of oil including shale and tight gas would be a cause of concern from the perspective of gas flaring issues. The level of flaring is tied to the level of oil production; hence, oil production numbers can be used to forecast the magnitude of gas flaring.

The U.S. Energy Information Administration (EIA) has forecasted oil production from shale to increase by 40% between 2012 and 2020, which would ultimately increase the emissions from gas flaring in the U.S. Hence, we can expect the numbers of gas flaring to expand for the U.S. unless some stringent controls are put in place to control this issue.

EBRD is vested in projects to reduce the level of gas flaring globally. The organization suggests that financing of projects that use the gas for re-injection or local energy may reduce flaring by 30% in the next five years.

‘The high cost of oil relative to gas means many developers who are drilling for oil are failing to invest in the infrastructure needed to capture the gas and natural gas liquids that are released alongside the oil. Investors and officials in the US are now expected to step up pressure on developers to limit levels of flaring and ensure that gas is captured and sold,” says the Guardian. Such investment is needed if we are to solve the global energy crisis and reduce wastages.