The Economics of Natural Gas Flaring and Methane Emissions in US Shale: An Agenda for Research and Policy

Abstract

Natural gas flaring and methane emissions (F&M) are linked environmental issues for US shale oil and gas operations. Flaring refers to burning natural gas when regulatory, infrastructure, and market constraints make it infeasible to capture it when drilling for oil. In this paper, we lay out an agenda for researchers and policy makers. We describe why F&M are linked, both physically and in terms of policy. Following an interdisciplinary literature review on measurement of F&M, we marshal detailed industry data to identify constraints in the natural gas system that are correlated with upstream F&M. We then discuss the economic and physical causes of F&M. Moving on to the external costs imposed by F&M, we calculate that the climate costs of estimated methane emissions are an order of magnitude larger than the climate costs of reported flaring after accounting for hydrocarbon content and flare efficiency. Finally, we discuss both existing policies and economic insights relevant to future policies.