The time is rapidly approaching when the oil and gas production industry across the U.S. will be forced to pay increasingly steep taxes on gas flaring. Taxes that could eat heavily into already tighter margins in an age of cheaper energy where the U.S. has reclaimed the title of the planet’s biggest oil producer as of last year, overtaking both Saudi Arabia and Russia, with production set to rise even further to around 13.1 million barrels per day over the next four years (IEA) as oil stockpiles fill up. Gas flaring is typically done at the wellhead at oil drilling sites where either a lack of ready pipeline infrastructure and capacity exists to tie such production into, or other means of actually utilizing the associated gas, like access to LNG/CNG trucking and/or production facilities is lacking, which ultimately results in the gas being flared off to prevent hazardous build up.
The standard industry practice of gas flaring is seeing growing pressure now from environmental groups at the state level and the current federal administration has even doubled down on serving such interests with moves to implement sweeping new methane emission targets. Many analysts within the oil and gas production industry have surveyed the situation and have begun preparing for the inevitable, increasingly tighter restrictions on gas flaring, enforced by taxes and other economically punitive measures.
Just within the month of February 2015 several new items cropped up on the radar. In North Dakota, a new Senate bill designed to levy taxes and royalties on wasted natural gas within 14 days after a well begins production has been put forth, representing a steep reduction from the 12 months companies currently are allowed. President of the North Dakota Petroleum Council has hit back at the move, arguing that some $13 billion plus has already been spent by the state’s oil and gas production industry to capture such gas and that landowners in the Bakken area are still tying the industry’s arms when it comes to allowing gas pipelines to be built. However, despite such reasoned analysis, the fate of this industry practice seems too many to be written in stone.
Wyoming has also seen the introduction of a House bill calling for similar gas flaring taxes and beyond the emissions factor that is often cited for passing such legislation, lost revenues for the state’s coffers is being promoted more and more as a primary justification. North Dakota legislators argue some $11.5 million in gross production tax revenues could be collected if their legislation is passed. In Wyoming’s Powder River Basin, a nearly identical sum’s worth of natural gas ($11.4 million) was flared off in the first ten months of 2014 alone, according to analysis by the Casper Star-Tribune – a data point which makes the case for lost revenues unmistakably clear. Sierra Club has been one of the primary movers here, urging landowners not to allow pipelines to be built, while simultaneously urging state and federal legislators to impose taxes on gas flaring.
Smaller or marginal producers and wildcat operations in particular are going to get caught in the bite as all of this plays out and they will be forced to either pay increasingly onerous taxes and royalties, or implement innovative new technologies to capture gas at the well site. Technologies like the Micro-Refinery Unit (MRU) system developed by Canadia-based ME Resource Corp. (CNSX:MEC) in cooperation with École Polytechnique de Montréal and Waste Stream Energy Corp., which has been licensed to Well Power, Inc. (OTCM:WPWR). The MRU technology, an ingenious combination of proven commercial technologies and a proprietary micro-reactor system to handle the hydrocarbon processing and catalytic reactions, can turn otherwise flared, stranded, or vented gas into either on-site clean electricity, or readily saleable Engineered Fuels™ like diluents, no-sulfur drop-in diesel, and pipeline-quality synthetic crude.
WPWR has obtained exclusive licensing rights to this technology for the state of Texas, where there are currently no flare taxes yet and where wells are only allowed to flare for 10 days after the start of production before having to get a permit that covers an additional 180 days. Flaring in Texas’ Eagle Ford Shale alone burned off a whopping 20 billion cubic feet plus of natural gas in the first seven months of 2014, more than all the emissions put out by operations on this formation during all of 2012 and many analysts see Texas as a prime target for new rulings like those being put forth in North Dakota and Wyoming. The MRU basically converts methane and condensates into syngas and then uses a Fischer-Tropsch chemical reaction process to turn the syngas into engineered fuels, with clean electricity being a natural byproduct, as it is harvested from exothermic reaction and combustion heat sources created during the processing.
Well Power also has right of first refusal on the MRU technology in the other states and has recently identified an area for the commercial prototype unit build in close proximity to the MRU R&D team, as well as having announced the engagement of key process engineers required for the prototype build. The design and concept of the MRU are simple, yet brilliant – employing existing bench-scale technologies to miniaturize the refinery process to a modular, container-sized implementation, which will be skid-mounted and can thusly be transported from site to site with ease. High-capacity (75 Mcf to 250 Mcf) and scalable, MRUs could be just the ticket for oil and gas producers looking to avoid taxes and turn what is otherwise wasted gas, that could soon be a major liability, into revenues – whether they are single well wildcats or larger operators with multiple well sites.
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