Associated Gas in Oil Wells: Permian Basin Associated Gas Leading New U.S. Natural Gas Growth

 

     The EIA defines associated-dissolved gas as “natural gas that occurs in crude oil reservoirs either as free gas (associated) or as gas in solution with crude oil (dissolved gas).” The term is usually shortened to associated gas. The gas is often dissolved in the crude oil when in the ground due to the formation pressure but is released as the pressure is reduced when the oil comes to surface. It may also exist in the formations as a “gas cap” overlying the oil reservoir. As oil is often the main desired component of production due to demand and pricing, associated gas can be unwanted where pipelines are not available to transport it. For this reason, it has often been vented and flared in the past. High venting and flaring rates in oilfields around the world have led to a backlash since this is a major source of greenhouse gases, all methane in venting, and nearly all CO2 with small percentages of methane in flaring. With recent regulatory rules being enacted to decrease flaring intensity, there are now several ways to deal with this “stranded” gas. These include building pipelines, closed-loop gas capture systems, using the gas for local power, and powering bitcoin mining. Local economics and logistics can make capturing associated gas prohibitively expensive. This is why tens of billions of dollars of it are released into the atmosphere annually around the world.

     The EIA reports that associated gas “increased 9% to 15.5 billion cubic feet per day (Bcf/d) in the major U.S. onshore crude oil-producing regions (Permian, Bakken, Eagle Ford, Niobrara, and Anadarko) mostly due to an 8% increase in crude oil production. Associated natural gas accounted for more than a third of total natural gas production in these regions and 14% of total U.S. natural gas production.” Thus, associated gas makes up a significant and growing percentage of total U.S. natural gas production. In terms of calculating U.S. greenhouse gas emissions from natural gas, it tends to make natural gas as a whole more carbon intensive, since this is where the most venting and flaring occurs. Thus, when considering natural gas emissions, one should ideally differentiate primary natural gas from associated gas.  

 

 

Permian Basin Associated Gas Increase Drivers: Increasing Oil Production and Increasing Gas-to-Oil Ratio (GOR)

 

     The Permian Basin is by far where associated gas production is growing the most. In all the other U.S. oil plays it has more or less stagnated. In 2022 Permian region oil production increased by 12% and associated natural gas by 15%. Permian associated gas production increased by 1.3 Bcf/d to average 10.2 Bcf/d for the year, accounting for 56% of U.S. total associated natural gas production. These numbers have continued to grow through 2023. U.S. crude oil production reached a monthly record in August 2023 of 13.05 million barrels per day and weekly record on October 6, 2023, of 13.2 million bpd. Texas and New Mexico are producing about 57% of U.S. crude oil, with the Permian reservoirs being the major contributors. The Permian region produces over 40% of U.S. crude oil and is now the region with the second highest natural gas production, accounting for about a quarter of U.S. gas production.

     New gas pipelines in the works will increase Permian associated gas production more in the near future. EIA reports that associated gas from the three main Permian Basin reservoirs, “the Wolfcamp, Spraberry, and Bone Spring plays—has nearly tripled since 2018, from an annual average of 4.7 billion cubic feet per day (Bcf/d) to 13.7 Bcf/d in the first seven months of 2023.”

     There are actually two reasons for the increase in associated gas production. One is simply the increase in the crude oil production with which the gas is associated. The other is the increasing gas-to-oil ratio (GOR) that is common in producing oil reservoirs through time. GOR simply measures the gas produced per barrel of oil produced. The combined GOR of the Wolfcamp, Spraberry, and Bone Spring plays has increased from 2 Mcf/barrel of oil produced “in 2013 to 3.1 Mcf/b in the first seven months of 2023. From 2013 to 2023, associated natural gas production from these three plays increased by 13.2 Bcf/d; about 4.7 Bcf/d of the increase came as a result of the increased GOR compared with 2013, while the other 9.0 Bcf/d of increased production came from increased crude oil production.” That means about 36% of the increase is attributable to increasing GORs. GORs will continue to increase. EIA defines oil wells as wells with a GOR of less than 6Mcf/b. If GOR increases to more than 6mcf/b it is reclassified as a natural gas well. The reason GOR increases over time is that reservoir pressure decreases over time, allowing more gas to escape to the surface.   

 

 

     Things that could affect associated gas production in the future include oil prices. If oil prices drop to the point where oil production drops then associated gas production will drop as well, although increasing GORs would offset some of this drop. New flaring rules in New Mexico and new federal fines on methane emissions will also reduce the amount of gas being vented and flared in the Permian so that more associated gas will be captured and produced. The region is not as constrained by pipeline buildouts as are other regions so new pipelines will also support growing volumes of associated gas.

 

  

References:

EIA: US Crude Output Reaches Monthly Record in August at 13.05 Million bpd. Reuters. Pipeline & Gas Journal. November 1, 2023. EIA: US Crude Output Reaches Monthly Record in August at 13.05 Million bpd | Pipeline and Gas Journal (pgjonline.com)

Associated natural gas production nearly triples in the top three Permian plays since 2018. Energy Information Administration. November 2, 2023. Natural Gas Weekly Update (eia.gov)

Associated natural gas production increased 9% in 2022 due to higher crude oil production. Energy Information Administration. October 19, 2023. Natural Gas Weekly Update (eia.gov)

The Distribution of U.S. Oil and Natural Gas Wells by Production Rate. December 2022. Energy Information Administration. The Distribution of U.S. Oil and Natural Gas Wells by Production Rate (eia.gov)