NEW YORK -- Oil companies routinely trumpet their operational efficiency in presentations to Wall Street analysts, but, in fact, they lose trillions of cubic feet of natural gas each year as inefficient producers burn or release gas and as old or faulty pipelines leak tons more.
But the industry is pledging to change that. The American Petroleum Institute is planning to focus on oil-field gas flaring in the upcoming third part of its "Oil and Natural Gas Industry Guidelines for Greenhouse Gas Reduction Projects."
It all sounds good. But it is easier said than done.
"While it makes sense from a practical standpoint, it's not that simple," said Jeremy Nichols, director of the climate and energy program at the Colorado nonprofit WildEarth Guardians. "People walk by pennies on the ground and never pick them up, and it's the same thing here."
Oil and gas producers often find it more cost-effective to drill new wells and bring new production online, than to install vapor-recovery equipment, increase inspection and maintenance, and take other steps that could save them millions of dollars.
Moreover, the exploration and production units of petroleum companies often win out over their counterparts at maintenance and environmental compliance in the competition for attention and cash from headquarters.
"There is great opportunity for further fugitive and vented methane emissions reductions in the oil and gas sector, in the United States and worldwide," said Roger Fernandez, head of U.S. EPA's Natural Gas STAR program. "There are also substantial opportunities for flaring reduction in many countries worldwide."
Others say a much-needed government push is also missing.
EPA's voluntary program has had some success, and the Minerals Management Service has been pressed to clamp down on flaring by offshore platforms. But the Bureau of Land Management has no specific program to address the problem, and many see BLM forgoing millions in lost tax revenue by not requiring petroleum companies that operate on federal lands to capture and sell as much oil-field gas as possible.
The cumulative effect of flaring, deliberate methane venting, and leaks at oil and gas operations worldwide is an astonishingly high level of waste and lost potential energy.
World Bank data show the petroleum industry flares or vents about 150 billion cubic meters, or about 5.3 trillion cubic feet, of gas each year. That is roughly equivalent to 75 percent of Russia's total annual gas exports, or 25 percent of annual U.S. consumption, bank economists say.
The world's top oil and gas producers are also its top gas wasters.
Saudi Arabia flares approximately 119 billion cubic feet each year, and Libya flares off even more. China and Indonesia, both huge energy consumers, burn 87.6 bcf and 84.4 bcf each year, respectively, not a drop going to generate electricity or heat homes.
Russia's waste dwarfs them all.
Each year, Russian oil companies burn off 49.93 billion cubic meters -- almost 1.8 trillion cubic feet -- of gas. That is about half the amount of U.S. annual imports. Nighttime satellite images of Russia's main oil patch show a region that seems to be constantly on fire, an effect from the thousands of flares.
And the problem is widespread in the United States as well, though the U.S. industry prides itself on its technological sophistication and hard-economics focus.
Flaring natural gas is the equivalent of burning money, and U.S. oil and gas concerns acknowledge that. Most companies claim that capturing and utilizing gas from oil fields is standard practice.
Still, more than 66 billion cubic feet is flared or vented each year by U.S. operations. EPA estimates that -- combined with faulty pipelines, inefficient refineries and other sources of leaks -- as much as 300 billion cubic feet of natural gas could be lost to the atmosphere in the United States each year, about $1 trillion worth at average April 2009 gas prices. That includes methane, butane, ethane and other valuable products.
Fernandez, whose EPA program has netted some important successes, figures that the industry could today cost-effectively capture at least 30 percent of that gas using existing technology. The investments would eventually pay for themselves -- returns could arrive anywhere from three years to just a few months, depending on gas prices.
But officials at the American Petroleum Institute point out that the fix is not that simple.
"It really depends on the quantities," said Bill Bush, a spokesman at API. "You could have pretty small quantities."
The gas content of any oil field varies. Though cumulatively the amounts are enormous, often the recoverable gas at any given well is marginal and of little face value to the producer, especially when gas prices are low.
Also, the gas could be located far from markets, or far from pipelines and refining infrastructure. That is particularly true in Africa, where Nigerian offshore facilities are notorious gas wasters.
"The laws are starting to get written and pipelines are starting to get built," Bush said, "but you're basically building an infrastructure from scratch."
Help from carbon markets
A World Bank study of 44 oil-producing nations concluded that most developing countries, particularly in Africa and the Middle East, lack effective oil-field gas flaring and venting regulations, encouraging further waste.
The standard practice in Middle East nations is to burn oil for electricity, even though they could earn more money by exporting that oil and burning the gas from the fields for their energy needs instead.
Efforts are under way to solve the problem, including the possible tapping of global carbon markets, using revenue from offset credits to incentivize companies to be more efficient.
Three oil-field gas-flaring reduction projects -- in Vietnam, Nigeria and Qatar -- have been registered at the United Nations' international greenhouse gas emissions offset program, the Clean Development Mechanism, and more could be on the way.
"We know of other projects where they are trying to do it, but not all of them get sold," said Paul Soffe, associate director at the London office of the carbon-offset consultancy EcoSecurities. "We know of one that we're working on in Eastern Europe."
Soffe helped advise government-owned Qatar Petroleum in its application to generate carbon credits from its massive Al Shaheen offshore oil operation. That project, in cooperation with Maersk Oil, involved spending millions to pipe the gas to shore, where it is refined and converted into various products and burned for electricity, supposedly offsetting oil-fired generation and netting 50 percent less greenhouse gas emissions.
Supporters of such offset schemes say sales of carbon credits could spark a flurry of activity by oil and gas concerns to tighten operations worldwide. Experts also see opportunity in the United States to use offset trading to encourage the petroleum industry to be more efficient.
Aside from EPA's Gas STAR, the World Bank is also working with Qatar, Nigeria, Kazakhstan and others through its Global Gas Flaring Reduction Program. But voluntary programs can only go so far, environmentalists say. What may really be needed is the heavy hand of government to compel petroleum companies to shape up.
"It's not worth it in their minds," said Nichols of WildEarth Guardians. "It's not worth it because there is no incentive for them to do it from a regulatory standpoint."