Burning Money: Natural Gas Flaring Costs Millions in Lost Revenue

Nighttime satellite imagery makes it seem like a new metropolis has sprung up in the prairies of western North Dakota. But the large cluster of lights actually comes from natural gas flaring in the Bakken oil field. Flaring – or the burning of natural gas released in oil fracking – creates pollution and costs the state millions of dollars in lost taxes and royalties.

An Earthworks report explored gas flaring in North Dakota’s Bakken and in Texas’s Eagle Ford shale plays. Both plays are primarily drilled for oil. However, fracking for oil also releases methane (natural gas), a greenhouse gas with several times the global warming potential as carbon dioxide. The majority of this methane is captured and either sold or used on site. But significant quantities in both states is simply burnt on site to avoid methane pollution.

Flaring – or the burning of natural gas released in oil fracking – creates pollution and costs the state millions of dollars in lost taxes and royalties.


Flaring converts methane to carbon dioxide, meaning the process still contributes to climate change. Earthworks estimated that in 2013, flaring in Texas and North Dakota produced as much carbon dioxide as one and a half million cars on the road. Thus, flaring is hardly a viable option for reducing greenhouse gases. Flaring also pollutes the air with toxins like benzene, a known carcinogen.

Moreover, burning natural gas is a waste of a nonrenewable resource. It seems illogical to burn off natural gas in Texas and North Dakota when other parts of the country are fracking for it. In fact, North Dakota flared 96 million cubic feet of natural gas in 2013 – nearly as much as was drilled in Michigan in 2012. So why aren’t companies trying to capture all of this gas?

Much of the issue boils down to economics. Natural gas, on an energy equivalent basis, is worth about a third of the price of oil. This reduces the incentive for drilling companies to invest in the infrastructure to capture and transport natural gas.

But rather than seek to correct this market failure, state policies often further encourage the practice. For instance, in North Dakota, wells are permitted to flare tax free during the first year. This encourages flaring and resulted in $17 million in lost tax revenue between 2009 and 2012. After the first year, operators can seek an exemption by arguing gas capture is economically infeasible. Otherwise, they begin paying royalties to lease owners and taxes to the state on flared gas. However, the state does not track flaring taxes nor investigate whether companies are complying.

In Texas, wells may only flare in the first 10 days of operation. Afterwards, operators may apply for a permit allowing them to flare up to an additional 180 days. The number of permits has risen dramatically over the past five years, with over 3,000 issued in 2013. Moreover, Texas does not have a flare tax, preventing the state from gaining any revenue from wasted natural gas.    

If states do not tax flaring, they are essentially telling companies that they approve of wasting the natural gas.


Taxing flared gas makes it more expensive for companies to simply waste this non-renewable energy.  Without the option to just cheaply burn the gas onsite, more companies would invest in the equipment to capture and use it.  But if states do not tax flaring, they are essentially telling companies that they approve of wasting the natural gas.

New rules in North Dakota are aiming to reduce flaring. Beginning May 2014, new well permits must include a plan for capturing methane and connecting to local pipelines. And beginning in October, operators must meet reduction targets in order to drill at maximum levels. These are certainly steps forward. However, the rules do not apply to wells that have already gained exemptions from flare taxes. Moreover, without proper monitoring and enforcement, they can become one more regulation for companies to bypass.

Both states should improve enforcement of flaring regulations. Moreover, Texas should follow North Dakota by requiring a gas capture plan and implementing flaring taxes. Finally, flaring taxes should equal market value of natural gas. This would create an economic incentive to reduce flaring and compensate states for the loss of this natural resource.

Visit Earthworks’ interactive maps depicting flaring in these regions. You can also view the entire Global Flaring Visualizations, created by SkyTruth, to see where flaring is occurring around the globe. 

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So a private entity that doesn't produce a product should still pay taxes on the non-production? Should we charge sales tax on a car factory not operating at peak production? Should we shut the factory down? The fact of the matter is flaring constitutes roughly 3 percent of the value of total production. There's a whole lot more good that comes in terms of jobs in drilling, manufacturing, real estate, and so many other sectors to negate your petty concern about someone else's resource.
Please check your facts related to the pricing of natural gas in relation to oil. It is not close to 1/3 of the price. Even with the C3+ products, that make up the majority of the value of the gas, it is worth somewhere in the range of $6 per MCF, whereas oil nets around $80 - $90 per BBL at the wellhead. Since the average ND well produces on in the rang of 1000 BOPD and 1000 MCFD, that means at maximum natural gas will account for around 7% of the total value of the well. So if you compare the lost $17 million in taxes to the tax revenue gained from the oil sales that were allowed to continue, you may start to understand why a state might incentivize this kind of recovery effort. If you would like to complain about reckless greenhouse emitters why not target coal? It still makes up about 60% of the power generation capacity in this country and is essentially making natural gas uneconomic.
The total lifecycle greenhouse gas emissions of natural gas from extraction through combustion are similar to, if not worse than, those from coal. We need to stop burning ALL fossil fuels as soon as possible. We should be working to phase out gas drilling and natural gas-fired electricity generation -- not expanding them.
A private entity that forever wastes a nonrenewable resource so that it can otherwise profit? Yes that entity should pay not just a tax, but for the full value of the nonrenewable energy source that they're preventing current and future generations from ever using. Absolutely.
great article
Turn Flare Gas into Electricity www.ener-core.com