INDEPENDENTS CALL FOR TIGHTER FIT BETWEEN TEXAS GAS FLOW, DEMAND

Independent Texas operators have asked state regulators to curb waste of gas in the state by aligning allowables with market requirements. Members of the Texas Independent Producers and Royalty Owners Association (Tipro), Austin, blame surplus natural gas supplies in part on unrealistically high allowables set monthly by the Texas Railroad Commission. Tipro leaders also blame surpluses on undisciplined operators producing gas at maximum rates in nonprorated fields, regardless of demand.

Sept. 2, 1991

4 min read

Independent Texas operators have asked state regulators to curb waste of gas in the state by aligning allowables with market requirements.

Members of the Texas Independent Producers and Royalty Owners Association (Tipro), Austin, blame surplus natural gas supplies in part on unrealistically high allowables set monthly by the Texas Railroad Commission.

Tipro leaders also blame surpluses on undisciplined operators producing gas at maximum rates in nonprorated fields, regardless of demand.

Independents say low prices resulting from excess production are causing waste through premature abandonments of fields and economic inability to use the most effective production techniques or to adequately develop gas reservoirs.

Tipro estimates that wasted gas production costs Texas gas producers $3 billion/year and state government $1 billion/year.

The association urged TRC to align allowables with demand by Oct. 1.

In low demand months since February 1991, Texas operators in prorated fields produced 84-96% of monthly allowables set by the TRC. Demand is equated with marketed gas production. By setting allowables that exceed demand, TRC is contributing to the waste of gas, Tipro says.

On an annual basis, Texas operators produce about 96% of TRC gas allowables, Tipro estimates.

Jofree Corp. Principal Carol Freedenthal says if TRC curbs gas production in the state by trimming allowables, there is a chance Texas producers could loose some market share to Canadian gas.

ASSIGNING ALLOWABLES

Texas Railroad commissioners set gas allowables by requiring purchasers to nominate expected monthly takes, then prorationing demand among prorated wells. Demand is allocated based on each purchaser's supply mix from each class of wells in a six tiered priority system:

Casinghead gas from tertiary and secondary recovery projects.
Gas from special allowable wells that must be produced at specified minimum rates.
All casinghead gas not involved in tertiary or secondary recovery projects.
Gas from wells with multiple completions.
Gas from nonprorated wells granted a special allowable by the commission because of unusual circumstances after notice and hearing.
Gas from all other gas wells, mainly gas only wells.
Production from gas only wells in the lowest class is curtailed first.
TRC officials say the commission's objective is to set allowables that match market demand. However, they agree that gas allowables routinely exceed demand and mainly blame the mismatch on:
A tendency by purchasers to nominate more gas than they need to assure adequate supplies for serve customers.
Inaccurate well gauges by operators, which in many cases are overstated.
TRC officials acknowledge that Texas wells can produce far more gas than markets can absorb.

ANNUAL ALLOWABLES

Railroad Commissioner Jim Nugent has proposed simplifying Texas' proration system by replacing the monthly allowable system with annual allowables. Under Nugent's plan, each operator producing gas from a prorated well would have the flexibility to adjust his monthly production to meet demand as long as he produced no more than his annual allowable.

Nugent says his proposal would remove privileges and inequities of the current system and give all producers fair shares of the Texas gas markets.

"We would still be required to match production to market demand, but this would allow producers more flexibility to respond to market fluctuations," a TRC official said.

TRC officials say Nugent's proposal would eliminate many TRC and operator calculations and record keeping requirements of the current proration system.

TRC officials believe purchasers could more accurately estimate annual takes than monthly takes. Nugent's plan doesn't address problems caused by inaccurate well tests. But commission officials say more accurate purchaser data would solve most of the problem.

Complexity has been added to the situation by producers' direct sales to end users. Some purchasers buy gas directly from producers with gas only wells, the lowest on TRC's priority system.