Natural Gas 'Flaring' Worries Investors

The practice hasn't been used very often over the past decade or so, but now we are starting to see a rise in energy companies burning (or “flaring”) natural gas. In traditional oil businesses, the practice of flaring had supposedly been on the decline, but now it is soaring in places of large shale oil formations, such as the boomtowns in North Dakota and Texas.

Energy companies decide to flare natural gas when they are unable to capture and sell as they produce shale oil which is much more valuable. Burning their natural gas is essentially an overwhelming supply issue in which the infrastructure cannot keep up with the large boom.

And now it is beginning to bother the investors.

Karina Litvack is the head of governance and sustainable investment at F&C Asset Management and she is one of 36 investors who sent a letter to 21 oil drillers asking them to disclose the amount of natural gas they are burning off. Some of the companies contacted were Chesapeake Energy Corp, Exxon Mobil, and Continental Resources Inc. These companies specifically are located in shale oil operations in North Dakota, Texas, Colorado and Ohio.

“We want to encourage companies to articulate plans for resolving this issue while shale oil production is still in its relative infancy,” Litvack says.

Shale oil drilling has dug the U.S. out of it's declines old decline of crude output, but the rapid pace at which the shale boom has developed has environmental and financial risks. Experts and investors alike say that emissions from flaring and venting natural gas cause air problems and increase global warming.

Therefore to get a better unders! tand of the flaring practice, as well as limit the risks, investors want companies to disclose by May 1 how much flaring is being done and to meet with them to plan ways to resolve the problem.

From Reuters,

The practice "poses significant risks for the companies involved, and for the industry at large, ultimately threatening the industry's license to operate," they wrote in a letter to the companies…

Techniques including hydraulic fracturing, or fracking, have given drillers in those states access to vast new deposits of shale oil. But some states, many of which are new to drilling, do not have strong regulatory systems in place.

One third of the gas North Dakota produces is flared. The amount flared per day by last July had increased 1,200 percent since 2004, when development of the Bakken shale formation began, according to the state's government.

The numbers are alarmingly high and investors are rightfully alarmed as well. Estimations of flared gas in North Dakota produced 2 million tons of carbon dioxide last year. That amount equals 384,000 extra cars on the road. But environmental issues aside, even with the low natural gas prices, the state still lost about $110 million in revenue last year from the flaring.