Here in New Mexico, the big news has been Joe Biden’s selection of Rep. Deb Haaland to become the next Secretary of the Interior. Haaland would be the first Native American cabinet secretary. She would join Michael S. Regen, Biden’s pick to run the EPA, as a key executor of the new administration’s aggressive moves on climate change — particularly Biden’s promise to ban hydraulic fracturing on Federal lands.
For Haaland this will mean big drama in her home state. That’s because New Mexico in recent years has become the bullseye for new oil and gas fracking. As geologists have figured out how to unlock billions of barrels from the state’s portion of the Permian, hundreds of new wells have been drilled and fracked with millions of gallons of sandy water.
Because much the state’s oiliest territory is situated on state and federal lands, New Mexico has been enjoying copious royalty checks from all that oil. Royalties from the production of oil and gas here now amount to roughly a third ($2 billion) of the state government budget. The challenge for Secretary Haaland will be in how to carry out the Biden climate agenda while assuaging her state constituency of the potential loss of their golden egg laying goose.
Lets look at the two big oil and gas basins in New Mexico, and some options that Sec. Haaland might consider in how to achieve climate solutions here that can satisfy all parties involved.
The San Juan basin.
The San Juan basin was at the top of gas-producers in the USA but has now been displaced to number five by the new shale-gas gushers, such as the Marcellus in Appalachia, the queen of shale-gas. For over 100 years, San Juan produced gas and was the backbone of New Mexico’s economy.
In 2009 there were forty thousand drilled wells in the San Juan basin. The basin contained the largest coalbed methane field in the world.
The Delaware basin.
Southeast New Mexico is sitting on an ocean of oil and gas in the Delaware basin (Figure 1). Two underground layers together contain forty-six billion barrels of oil and 280 trillion cubic feet of natural gas. According to the USGS, these vast quantities are the largest deposits of oil and gas ever discovered in the USA.
At the peak in 2018, about 7 million barrels per day (MMbpd) of shale-oil were produced. The main contributor to this was 3.2 MMbpd from the Permian basin, including 1 MMbpd from the Delaware basin. New Mexico ranked third in crude oil production, after Texas (of course) and North Dakota (the Bakken play).
About that time, the US became self-sufficient in oil, and this meant enormous savings via the import-export exchange.
Oil boom and bust in New Mexico.
As reported by the Albuquerque Journal in late 2018, the oil boom in Southeast New Mexico generated $1.2 billion in state budget surplus from taxes on new production from oil and gas companies in the Delaware. A statement from former New Mexico governor Martinez described the revenue boom as the “largest budget surplus in New Mexico history.” The shale-oil boom of southeastern New Mexico was accompanied by a huge influx of jobs and a rush of activity that placed stress on housing and schools and hotels and highways.
But in the second half of 2019 investment in oil and gas slowed. Then came the Covid-19 pandemic in early 2020 and oil and gas crashed with large oilfield services job losses (50,000 in Texas and 4,500 in New Mexico). The price of a barrel of oil went to zero for a while before gradually recovering. As a result, New Mexico projected a budget drop of $850 million for fiscal year 2021 with about 70% of the drop due to oil and gas.
Remarkably, the Delaware basin, with 58 drilling rigs active now, has recovered to 1 million bpd averaged over the first 9 months of 2020 because production costs are cheaper, according to the same report. As a result, an extra $170 million has come into New Mexico’s budget from oil and gas.
Renewables in New Mexico.
Renewable energies are roaring ahead in New Mexico. Sometimes called a Mini Green New Deal, a new energy bill called the Energy Transition Act was implemented in early 2019 and points the way to 100 percent carbon-free electric grid in New Mexico by 2045. Public utilities would have to get 50 percent of their electricity from renewable resources by 2030. New-technology battery storage systems would provide the backup.
What’s the ideal balance between oil and gas and renewables in New Mexico? Many countries and states, cities, and even some industries have settled on net-zero greenhouse gas (GHG) emissions by 2050. Net-zero means if a country is still producing GHG at some level, they need to be removing the same level of GHG from the atmosphere to compensate.
Because it seems nearly impossible to transition all fossil fuels over to renewables by 2050, net-zero opens the door to creative schemes like planting forests and carbon capture and storage (CCS), to remove CO2 from the atmosphere and offset the CO2 released by fossil fuels.
What can Deb Haaland push for?
A petroleum engineer colleague of mine noted that in the San Juan basin, where he works, tribes are protective of their oil and gas partnerships. Tribes that have business ties in this area include the Southern Ute, Jicarilla Apache, and the Navajo. The tribes are also protective of their sacred sites, he said. Haaland, a member of the Laguna Tribe, will benefit from meeting and talking with these tribes about the transition from fossil to renewable energies.
Haaland could ban fracking on public lands, which is the same as banning drilling new wells because essentially all modern wells are fracked. But this may not be serious because only 13% of wells are on public lands, and legislation for this is unlikely to pass in the US senate.
Flaring could be banned (see Figure 2). A few companies have made commitments to stop flaring (Shell and Occidental have committed the World Bank’s “Zero Routine Flaring by 2030”). Oil companies in southeast New Mexico flared 2.3% of their gas compared with 3.8% in Texas companies across the border. It’s in everyone’s interest to ban flaring because on average 1% of gas produced across the US is flared – amounting to 1 billion cubic feet per day (cfd). At $2 per thousand cfd, this amounts to a wasted $2 million per day, as well as a significant increase in GHG emissions.
Another source of emission is methane leakage from wellheads, pipelines, and processing facilities (Figure 3). Leaks from wellheads are usually very small but there are so many active oil and gas wells across the USA — including 61,000 wells in New Mexico — that what’s released into the atmosphere adds up fast.
Leakage is worse than flaring, because methane that escapes to the atmosphere without burning has 21 times the warming effect as CO2.
Fossil energy companies, like other companies, have their own carbon footprint, such as when they burn fossil fuel in big engines that pump water down a well during a fracking operation.
But oil and gas companies also make natural gas (methane) that leaks from wells and pipelines, and is deadly when it hits the atmosphere. And they also sell oil and gas to power plants or cars and trucks that burn the fuel into CO2 that is released to the atmosphere. Haaland will argue that oil and gas companies are different from other companies and should bear some responsibility for these extra consequences.
One responsibility is for oil and gas companies to reduce their methane leakages to zero, or very close to it. While some companies have improved a lot on this in recent years, Haaland could work with EPA and Congress where necessary to mandate and enforce monitoring of such leakages by all companies in New Mexico and across the USA.
A proactive idea.
A new idea could go a long way to “befriending” the strong oil and gas communities in New Mexico. Haaland could propose joint ventures between Interior and the oil and gas industry re carbon capture and storage (CCS/CCUS). Oil and gas companies have for decades injected CO2 deep underground in enhanced oil recovery (EOR) projects, while at the same time permanently trapping and storing 40% of the injected CO2. Haaland could suggest jointly funded field tests of projects in CCS/CCUS that would, during the transition, offset CO2 emissions from other industries such as cement and steel manufacturing, as well as from burning remaining fossil fuels.
In order to meaningfully reduce harmful GHG from New Mexico oil and gas companies, Haaland should work with these companies on a realistic transition plan to renewables and, in the meantime, take advantage of carbon capture technology while much of the state still depends strongly on oil and gas production and tax revenue.