Boom or Bust Economy

Published December 8th, 2020 at 12:19 pm, Last Updated January 28th, 2021 at 7:36 am

Last year New Mexico was riding high on the greatest oil boom in its history. This year New Mexico is making decisions whether it wants to be left “holding the bag” as it transitions toward a low-carbon economy. There is a lot of money at stake. Oil and gas revenue comprised 40 percent of the 7+ billion-dollar state budget in 2019. That is a windfall to a state that has been poor for so long. Revenues from the industry in 2020 due to the “COVID effect” have nosedived since the spring.

As the third-largest oil producing state in the nation, New Mexico’s Permian Basin backyard has recovered over 30 billion barrels of crude since 1920, and it has experts predicting there are at least 20 billion barrels of black gold remaining. Crude output has doubled in the last four years; and according to industry consultant IHS Markit, that number could rise another 50 percent by 2023.

The potential for New Mexico to be stuck with cleanup bills is almost inevitable, as oil and gas companies both small and large bleed out over the upcoming decades and declare bankruptcy. There could be a lot of small companies that cannot handle the cost of needed repairs, pollution cleanup, unforeseen disasters or retrofits for carbon emission standards.

Oil and gas have always been a boom or a bust. A sinkhole in Carlsbad may have given the state an opportunity to see what future it might have with oil and gas operators. The sinkhole is in an oil field service company’s brine well and was discovered by New Mexico oil regulators in 2008. The company declared bankruptcy, and the New Mexico Energy, Minerals and Natural Resources Department (EMNRD) spent $5.3 million studying and monitoring the Carlsbad sinkhole looking for a solution.

The State Legislature initially passed a law in 2010 that was supposed to fund a solution. But the state had to divert the funds for other uses. The original budget for remediation of the Carlsbad sinkhole was estimated at $43 million and would be funded through state and local funds. In early 2018 state lawmakers voted again to fix the abandoned well in Eddy County before the sinkhole could develop further.

Damage estimates the sinkhole could cause have ranged as high as $1 billion. If the sinkhole collapsed it could potentially swallow a highway intersection, an irrigation canal, a feed store, part of a mobile home park, a rail line, a church, several gas stations and an irrigation canal that provides water for more than 30 square miles of agricultural lands.

A brine well is a solution-mining operation to remove salt from caverns or deposits. Fresh water is introduced into the subsurface through a well casing, dissolving the salt. The brine is then pumped out and trucked to well sites for use. This has been a relatively cost-effective means of producing brine, though it can also be made by mixing dry salt with water directly at the point of use. This solution-mining of the salt results in the creation of an underground cavern. The stability of the caverns created by such a mining operation is dependent on the strength of the materials above it and its depth and width. There are a total of 32 permitted brine well operations in New Mexico associated with oil and gas development. The oldest of these wells date back to 1963. Currently there are nine active brine facilities.

Jim Griswold, bureau chief of the New Mexico Oil Conservation Division, told the Carlsbad Brine Well Remediation Authority at a special meeting in July that filling the northern portion of the cavern could cost an additional $10 to $16 million, as they had encountered a large cavity during the backfill work to stabilize the sinkhole. A variety of monetary options, including federal grants to fund the remediation, were discussed.

In a Nov. 30 update, the EMNRD said sand deployment at the Carlsbad brine well was suspended at the end of July 2020, and the deployment equipment has been removed from the site. The south portion of the site has been backfilled and stabilized, while the north portion of the site is partially filled and partially stabilized. 

The remediation contractor will be conducting bi-weekly visits to perform any needed inspections, equipment repair and site maintenance on the partially filled cavern. An array of sensors has been deployed across the site to collect data 24 hours a day seven days a week to detect ground movement and pressure within the cavity. Any unusual ground movement triggers immediate alerts that are relayed to EMNRD and the Carlsbad Fire Department. The highly sensitive sensors detect even the smallest vibrations, including any recent earthquakes in the surrounding areas. EMNRD said further work will be dependent on funding.

As the state moves toward a greener economy, the Carlsbad sinkhole highlights the need for increased oversight and the need to regulate and identify potential hazards the state and its residents could be exposed to. What appear to be low likelihood risks with the oil and gas industry can develop into large and unforeseen costs over a long time period, imposing on future generations the cost that the current generation has an obligation to monitor, mediate and fix.

Currently, there are 44,000 wells in the Permian Basin, many are newly drilled and appear to be waiting for the price of oil to go up to begin operations that are cost effective. To gauge sustainability, New Mexico Oil and Gas Association (NMOGA) contracted with global consulting firm ICF to study New Mexico’s production. An ICF report in September estimates production could see an increase by 300 percent over the next decade, generating around $8 billion in annual revenue for the state by 2030.

Investing money into regulatory oversight and enforcement is imperative of all high carbon output industries if the Land of Enchantment does not want to get stuck with cleanup of wells, deal with water pollution spills and an expanding population that is ill from having lived in the shadow of the methane clouds since the industry dug its first well.

Nathalie Eddy, the Colorado and New Mexico field advocate for the environmental group Earthworks, told The Paper. after returning from a trip to the Permian Basin, “If we want to have any chance of meeting our Paris goals of avoiding more than 1.5 degrees Celsius warming in 10 years, the State of New Mexico needs to stop issuing new drilling and air permits. It needs to stop the expansion of production and deal with the mess that they’ve created thus far. The Permian Basin seems to be the final basket for quite a few operators, including Exxon and some other big ones. They’re putting all of their remaining oil rigs in a sort of Permian Easter basket,” Eddy said.

She said currently it appears as if operators are in a holding pattern. “In Carlsbad I definitely felt that the energy of the pool was not there, there was less traffic. The man camps were emptier than I’ve ever seen them. But out in the field, there’s still operations polluting left, right and center on different sites with different types of operators,” Eddy explained.

Investing some of the income New Mexico receives in boom time into economic development and supporting growth industries—such as film and television, agriculture, recreational cannabis, aerospace, additional support for the fast-growing hemp industry, manufacturing, education and the renewable energy areas—appears to be the best investment. Diversifying our state’s industry will allow New Mexico to work toward an economy that builds wealth and is sustainable for the future. The future cost of doing business with the oil and gas industry is unknown and needs to be mitigated with strict adherence to existing regulations and the enactment of tighter regulations with well-funded oversite. New Mexico’s oil and gas companies and the state must institute new technology, like infrared cameras and aerial drones, to enhance the safe and reliable production of oil and gas. Otherwise, future generations could be stuck with a very big bill. [ ]