Drilling in the West
Oil production on western lands during the Bush administration is down 12 percent from the average during the Clinton era, according to an article in the New York Times on Sunday. Average production overall was 97.9 million barrels annually from 2001 to 2006, while production in the 1990's averaged 111.5 million barrels per year.
The Bush administration, though, has issued three times as many permits as Clinton did in the last six years of his administration. As it turns out, companies are going for natural gas instead of oil, with production of that commodity being 34 percent higher, at 2.4 million cubic feet annually, than the 1.8 billion it was during Clinton's administration.
Increased natural gas production is putting downward pressure on natural gas prices in North America because the market is "largely isolated from the larger world market," the Times said. It then pointed out that increased oil production, however, does not lead to lower prices locally because oil is shipped in tankers in a global market.
The article went on to describe both the environmental consequences of increased production, including increased ozone levels and declining animal populations in production areas, as well as the counter arguments that the energy industry is a good environmental steward that is slowed significantly by environmental concerns, reviews and lawsuits.
Interestingly, an article in the Farmington Daily News Sunday edition complemented much of the analysis in the Times article. While natural gas prices are at a historically high rate, both nationally and in New Mexico, they've dropped by 26 percent since early July at the Henry Hub, which is the entry point for natural gas in the Four Corners region. Oil has also dropped, the author noted, to around $120 per barrel from $145 a few weeks ago.
The Daily News also described how efforts to protect the environment can cause fluctuations in production, in this case due to uncertainty during the adoption and implementation phases of new groundwater protection regulations. The new regulations come from a three year process convened by the New Mexico Energy Minerals and Natural Resources Department's Oil Conservation Division to devise strategies for preventing groundwater pollution.
Bob Gallagher, president of New Mexico Oil and Gas Association, told the Daily News that the "rig count" over the course of the hearings illustrates the impact uncertainty has on the market. In July of 2006, before new pit rules surfaced as a possibility, there were 94 rigs in the state. By December 2007 there were 68. The number is back up to 84 this month, reflecting the end of uncertainty now that the new rules are implemented, Gallagher said.
For a detailed look at drilling on land in New Mexico, and the reasons why a significant amount of the land already leased here isn't being produced, refer back to Joel Gay's article here in the NMI last week, All Tapped Out.
Be the first to comment