By Christopher M. Matthews
PLC has been one of the companies most responsible for the burning of unwanted natural gas in the busiest U.S. oil field. Now it is trying to clean up its act.
The British oil giant plans to spend about $1.3 billion to build a massive network of pipes and other infrastructure to collect and capture natural gas produced as a byproduct from oil wells in the Permian Basin of Texas and New Mexico. It plans to announce Monday that it will eliminate routine flaring of natural gas in the oil field by 2025.
BP’s investment reflects the growing pressure big oil companies face from regulators, investors and buyers of natural gas to reduce the fossil fuel’s carbon footprint and contributions to climate change.
BP has pledged to reinvent itself as a cleaner energy company, saying it will let its oil and gas fuel production fall 40% by 2030 and ultimately sell more renewable energy than oil while reducing its net carbon emissions to zero. But to finance its ambitious transformation, BP is counting on continuing revenue from oil and gas production.
“We will be producing oil and gas for decades, but it will be a certain kind of oil and gas,” said Dave Lawler, the chairman of BP America Inc. “It’s a highly profitable barrel and it’s a responsibly produced barrel.”
The burning of gas, known as flaring, is prevalent in the Permian because most producers there drill for more profitable oil, and often incinerate the gas that comes as a byproduct. They do so because there isn’t enough infrastructure to pipe and process all of the gas so it can be sent to market. Flaring is also necessary in emergency situations, when operators have to release gas to relieve pressure buildups.
But flaring has come under increased scrutiny because it results in sizable greenhouse gas emissions.
BP has more work to do in the Permian than its big-oil counterparts. As recently as 2019, it burned a higher proportion of the gas it produced—about 15%—than all but one other producer in the Permian, according to data analytics firm Rystad Energy, and far more than rivals such as Exxon Mobil Corp. and Chevron Corp.
Before the pandemic gutted demand for oil and gas and forced sharp cutbacks in production, companies were flaring about $1.2 million worth of gas every day in the Permian. That is roughly enough gas to meet the daily needs of Nebraska or West Virginia. Burning that much gas resulted in roughly as much carbon emissions as driving more than six million cars for a year, according to an analysis of data from the U.S. Environmental Protection Agency.
The first phase of BP’s project is a facility known as Grand Slam, which along with a nearby water-processing plant began operating in June and cost $300 million. Spread across 50 acres hidden behind sand dunes and cattle guards near the Texas-New Mexico border, the plants are a maze of nearly 4,000 tons of steel equipment and pipe that centralizes the collection of oil and gas and its byproducts, and processes the different fuels so they can be sold. Several similar plants are planned, ultimately processing nearly all of BP’s Permian production.
The investment already appears to be making an impact. BP burned about 3.5% of the gas it produced in the second half of 2020, down sharply from 13% in the second half of 2019, according to Rystad. Mr. Lawler said the portion has fallen to 2% so far this year.
Still, BP continues to flare. In January it asked Texas regulators to grant 121 exceptions allowing it to burn more gas than regulations permit through April 2022. By contrast, Exxon and Chevron burned 0.9% and 0.4% of their gas, respectively, in the second half of last year, according to Rystad.
Mr. Lawler acknowledged there is more work to be done but said that by 2025 BP will only burn “de minimis” amounts of gas and won’t need flaring permit exceptions.
Fossil fuel companies have made huge bets on natural gas as a bridge to a cleaner energy future, noting that it emits more than 50% less carbon dioxide than coal when burned for power. But activists, regulators and others have begun paying more attention to the burning of gas as waste at drilling sites, and gas leaks along the supply chain from wells to power plants, as evidence that gas’s true environmental footprint is considerably larger.
Flaring has begun to increase in the Permian this year as producers resume drilling in response to recovering demand. Colin Leyden, a director at the Environmental Defense Fund, said companies should commit to eliminate routine flaring as a starting place.
“The idea you can drill an oil well with no destination for the gas has to stop,” Mr. Leyden said.
While large companies including Chevron, Exxon and BP have promised to end routine flaring in coming years, many smaller, privately held companies haven’t made such pledges. Private operators in the Permian accounted for about 25% of gas production in the second half of 2020, but were responsible for 55% of wellhead gas flaring, according to Rystad.
BP bought its Permian assets in 2018 from BHP Group Ltd. for $10.5 billion and inherited some of the most carbon-intensive wells in the region. Even after BP began operating the wells in March 2019, their flaring remained among the worst until about a year ago.
Mr. Lawler said BP won’t drill any well in the Permian unless it has access to a gas pipeline. To ensure there is minimal flaring of its gas, the company has also chosen to build and operate its own gathering and processing infrastructure instead of relying on third parties.
Mr. Lawler said the investment will ultimately be profitable for BP, capturing for sale as much as 10% additional gas, which otherwise would have been flared. That in turn will help BP finance even-greener future investments to come, he said.
“The low-carbon development of these assets will bring the cash flows that will fund the new projects that help us achieve our mission,” Mr. Lawler said.
