28 January 2013
From the blog Random Policy: Waste Not, Want Not, Michael Cain presents an interesting NASA night time satalite image of North America. The continent is dark except for lights emitted from cities and other sources, notabley, waste gas flares from the Bakken and Eagle Ford shale oil fields.
Near the North Dakota-Montana border is a cluster of gas flares roughly the size of Pittsburgh.
The Eagle Ford flares trace a 400 (644 km) mile-long arc across south and eastern Texas. Burning the “sour” gas (high in hydrogen sulfide) threatens air quality in nearby San Antonio.
While controversy over the proposed TransCanada Keystone XL pipeline, which would carry bitumen from Canadian oil sands to the Gulf coast, garners much attention in the news, millions of cubic feet of cleaner burning natural gas are flared off as a waste product. With the current glut of natural gas driving down prices, it’s cheaper for companies to burn the gas than invest in the infrastructure necessary to deliver it to market.
(Digression) When I was a boy, we had a kindly old babysitter who was usually fun to have running the house while our parents were away. The one time I remember her being “put out” with me was when I refused to finish a meal. She had me sit until I’d finish. But I didn’t finish the food. I just sat there figuring I could hold out longer than my “opponent” in what had become a foolish contest. Finally, she decided to it was time to clean up and move on.
“Some day, you’ll wish you had that,” she said.
It’s estimated that the “useless” gas burning away in North Dakota could supply 70% of the homes in that state. Instead, it pours more carbon dioxide into the atmosphere without providing any benefit.
What we have here, is a market failure. The oil is, according to the commodities market, much more valuable than the natural gas, even though the more abundant natural gas burns cleaner. Burn enough of the natural gas away, make it more scarce, and the price will go up. Then it will be worth capturing and selling. Seems crazy, doesn’t it?
The report A Market Failures Framework for Defining the Government’s Role in Energy Efficiency published out of the Oak Ridge National Laboratory explores this topic and suggests general approaches (bold type) to make energy markets more efficient. After each of the bold items are my interpretations of what they might actually mean:
Direct Regulation - The government could take a number of steps to reduce the waste, such as forcing the companies to store the gas, placing limits on the number of wells drilled, even shutting them down until some time in the future when higher gas prices will incentivise more efficient use.
Quantity and Price Instruments – Here, the oil companies would be soaked with taxes or permit fees that would essentially punish them for their waste, making it an expensive option.
Subsidies – These could be price supports for the cheap gas, making it more economically attractive for oil companies to build the infrastructure needed to carry the natural gas to market. It might also take the form of public-private partnerships to build infrastructure, convert vehicles to run on natural gas, convert coal power plant to natual gas, or other actions to build a stronger market for natural gas.
Information Programs – This can be as simple as making enough entities aware (advertising) of an available resource that’s currently disposed of as a waste product, that somebody with the means figures out a way to capture and use it. Maybe the Chinese will figure it out.
Of these options, the first three are probably not politically doable. If I had to bet, I’d go with the last one, where a nation like China, or Japan, or India, that, through the course of its history, has experienced widespread deprivation.
Here at home, I suspect, we’ll sit and do nothing, comfortable in the notion that, come tomorrow, we’ll be “fed” once again, as always.