Providing more than a third of the state’s fiscal year 2020 budget, the oil and gas industry came under attack this week from both the U.S. Environmental Protection Agency and the New Mexico Environment Department.
A new analysis from the nonpartisan New Mexico Tax Research Institute reports state revenue from oil and natural gas production in New Mexico totaled $2.8 billion in FY 2020, accounting for 33.5% of total state spending.
Despite lower commodity prices throughout the spring of 2020, record production kept the oil and gas revenue at the second highest total ever reported, second only to FY 2019 when the industry provided more than $3 billion to the state in taxes and royalties.
Meanwhile, justifying new rules expected to be promulgated in 2021, the NMED issued a news release Monday claiming a “significant” increase in emissions of methane and volatile organic compounds (VOCs) in the Permian and San Juan basins.
“The relationship between my state government and the oil and gas industry is unquestionably a love-hate relationship,” said State Rep. Larry Scott, R-Hobbs. “On one side, if my recollection is correct, it’s 40% of the state budget. On the other side, it’s climate change.
“It appears to me the current administration is oriented toward mitigating the effects of climate change rather than encourag ing development of our fossil fuel resources,” Scott concluded.
The New Mexico Oil and Gas Asso ciation (NMOGA) commissioned the nonprofit New Mexico Tax Policy Insti tute to analyze the economic impact of drilling on the state budget and the financing of education, public safety and other government programs.
Industry revenues were fueled by sustained production in the Permian Basin. Straddling southeastern New Mexico and West Texas, the area is one of the most prolific plays in the world.
“The oil and gas industry continues to be the key driver of New Mexico’s economy, delivering for New Mexico in a significant way despite the challenges we’ve all encountered during this unprecedented public health crisis,” said NMOGA President Ryan Flynn.
Asked about the NMED report that 505 of 9,100 observed oilfield tanks were leaking methane and other pollutants, NMOGA spokesman Robert McEntyre said, “These facilities that were observed are probably operating within the rules as currently written. They’re probably functioning the way they were designed to function. I think that operators are certainly trying to improve their environmental performance.”
The EPA and NMED used technologically advanced equipment in fly-over surveys of the oilfield allowing methane and VOCs to be seen from the air, then compared to the number of equipment seen in similar surveys in 2019.
NMOGA has participated with the NMED and other parties for the last 18 months in developing rules to reduce ozone-depleting emissions.
The industry group has said it approves of the new rules expected to be implemented soon.
“We’re committed to limiting methane emissions and we continue to strive to achieve further reductions. New Mexico has proposed an ambitious and challenging gas capture rate of 98% by 2026, and we stand in support of the goal,” McEntyre said in an email to the News-Sun. “With the appropriate regulatory latitude to innovate and deploy advanced technology, we are confident in our ability to meet that goal while delivering the energy and economic benefits New Mexicans depend upon.”
The NMED on Monday, however, indicated even stronger emission-reductions regulations may be necessary.
In the agency’s news release regarding the gas releases, NMED Cabinet Secretary James Kenney said, “It’s clear that voluntary emissions reductions measures undertaken by some operators are not enough to solve this problem. This is an undeniable call to action for our department to strengthen our draft ozone precursor rules and for every oil and natural gas operator with leaking equipment documented in these videos to immediately get emissions under control.”
Scott pointed out many legacy oilfield operations cannot economically capture and sell the gas that escapes under minor amounts above atmospheric pressure.
“The statistics they (the NMED/EPA report) quote don’t surprise me at all because all of the legacy production, or the vast majority of it, those tanks are not going to have vapor recovery equipment installed because it’s not economic to do so,” Scott said.
The NMED/EPA news release only calculated 5% from the number of “leaking” sites as seen from the air, not the volume of gases being released.
Scott explained more modern technology, “What has happened in the new development, by and large, is there is equipment installed on these larger volume installations called vapor recover units that pull that very, very low pressure — what we call fresh gas — off the top of these stock tanks, pressurize it and recirculate it to be sold, or if you don’t have a place to sell it, to be flared.
“In low volume installations that have been around for 30-40 years, that volume of gas, by and large, would be uneconomic to recover,” Scott concluded, noting the recovery equipment costs outpace the revenue from captured gas.
In the agency’s news release regarding the gas releases, NMED Cabinet Secretary James Kenney said, “It’s clear that voluntary emissions reduction measures undertaken by some operators are not enough to solve this problem. This is an undeniable call to action for our department to strengthen our draft ozone precursor rules and for every oil and natural gas operator with leaking equipment documented in these videos to immediately get emissions under control.”