Many of you have probably seen the incredible satellite images of American oil and gas fields that light up the night skies as brightly as metropolitan areas. A blog post from this past September covered the issue of “flaring,” and a follow-up article in our Institutional Investing in Infrastructure publication noted investors are part of a group that is advocating to end the practice:
“A group of investors representing $500 billion in assets under management, and which are part of the Ceres Investor Network on Climate Risk, sent a letter to 21 of the oil and gas industry’s largest shale oil producers, urging them to reduce or eliminate the practice.”
Those efforts are pushing the oil and gas industry to address the problem, and the recommended solutions should interest infrastructure investors.
In October 2013, members of the North Dakota Petroleum Council created a Flaring Task Force to develop a plan to reduce the practice, and in late January — just a couple weeks ago — the task force issued a report on its findings to the North Dakota Industrial Commission.
Among the task force’s recommendations are tax incentives that encourage the development of infrastructure that can capture, store and distribute natural gas for market. This lack of infrastructure and the costs and risks to develop it were the primary hurdle to putting an end to the practice.
The flaring task force recommends governments adopt property tax credits, production tax credits and low interest rate loans to encourage pipeline and electric transmission development and to mitigate the risks.
The task force estimates it could reach 95 percent of gas capture by 2020 and reduce flaring to 5 percent (currently it is about 30 percent) if all stakeholders such as state legislators, landowners and Indian tribes were fully committed to its plan.
Oil and gas producing states have an interest in capturing this lost natural gas — tax revenues. In North Dakota, for example, it is estimated that about $1 million each month of natural gas sales tax revenue is lost. So there is incentive for them to pass the task force’s suggested tax and financing incentives.
Some institutional investors also are incented to make such investments as well, having written environmental standards into their infrastructure investment guiding policies. The California State Teacher’s Retirement System is one such investor, and it is a member of the Ceres Investor Network on Climate Risk along with several other influential investors such as the California Public Employees’ Retirement System and the Florida State Board of Investments — each with an infrastructure mandate. Many infrastructure investment managers are also members of the Ceres network, including BlackRock, Deutsche Asset & Wealth Management and KKR.
Don’t be surprise if you are reading something on this blog or in Institutional Investing in Infrastructure in a few months about investments made in North Dakota or another U.S. oil and gas state that are part of this effort to reduce natural gas flaring.
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Drew Campbell is senior editor of Institutional Investing in Infrastructure.
