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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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The New Sweet Spot In The Permian Boom

New Mexico may be starting to surpass West Texas as the main focus of shale drilling, with rigs decamping from familiar areas in the Permian to other less drilled locales.

While the rig count continues to fall overall, down roughly 20 percent from a recent peak last year, the rigs are also being shuffled between and within shale basins. The southeastern corner of New Mexico has emerged as one of the more favored areas of drilling.

New Mexico’s portion of the Delaware basin (a part of the Permian basin) has actually seen a year-on-year increase in rigs.

“In November 2016, Reeves County, Texas, within the Delaware Basin took over from Midland County as the US county with the most active oil rigs. Reeves maintained that distinction for 149 consecutive weeks,” Standard Chartered analysts wrote in a recent report. “[H]owever, it has lost it in the latest data.”

Reeves County – southwest of Midland and Odessa – saw its rig count recently drop to 55 at the end of September. Meanwhile, the rig count in Lea County, New Mexico jumped to 59. With that, several consecutive years of Reeves County claiming the mantle of the most drilling rigs came to an end.   

“The Reeves rig count peaked in late-November 2018 at 85. Over the following 10 months, Reeves

has lost 30 rigs, while Lea has gained two rigs,” Standard Chartered said. “That shift is representative of a broader move within the Delaware Basin out of Texas and into New Mexico.”

The Houston Chronicle reported that all the familiar dangers that are associated with a concentration of shale drilling – traffic, road fatalities, health problems, as well as inadequate housing, healthcare and schools – are becoming more pronounced in New Mexico. Related: Oil Slumps Again… Will OPEC Act?

While Midland and Odessa are still the main oil hubs in the Permian basin, the smaller city of Carlsbad, New Mexico is the latest boomtown.

“The epicenter of this evolving boom is the Permian’s western lobe, known as the Delaware Basin, which stretches from Pecos, Texas to Carlsbad. The cities are connected by U.S. 285, a stretch of mostly two-lane road that has become known in recent years as the ‘Death Highway’ and spurred a new way to wish travelers well: ‘Stay alive on 285,’” Jordan Blum wrote for the Houston Chronicle.  

As Blum reports, there are roughly 450 road fatalities in the Permian basin each year, which surpasses the 300 deaths on average from migrants trying to cross the U.S.-Mexico border.

Another telltale problem associated with a fracking boom is the soaring rate of flaring and venting, which skyrocketed this year to record highs. According to Rystad Energy, flaring and venting averaged between 600 and 650 million cubic feet per day in the third quarter of 2019, a more than three-fold increase since early 2017.

In New Mexico, between 5 and 15 percent of gas released into the air is vented (as opposed to flared), which has a vastly more powerful impact on the climate than flared gas.

The industry has promised to rein in the amount of gas released into the atmosphere, but the Rystad data suggests that total venting and flaring remained near record highs in the third quarter.

Even as drillers flock to New Mexico, they may yet run into some speed bumps. State regulators are developing rules to put limits on flaring and venting of methane.

Regulators in Texas have proven to be uninterested in putting any limits on the industry, arguing overtly that the state prefers the economic benefits. It remains to be seen if regulators in New Mexico will put up more of a fight.

The flip side is that state coffers are fattened by the drilling boom, and New Mexico Governor Michelle Lujan Grisham recently proposed making public college tuition free. The initiative will be funded using revenues from the oil and gas boom. It’s an interesting development politically – unrestrained flaring risks the oil industry’s social license to operate; free college for all, paid for by oil, could resuscitate the industry’s image. Related: The US Oil Export Boom Is Only Just Getting Started

Even still, the flaring continues. The Environmental Defense Fund is launching a new project to monitor and measure methane emissions in the region. EDF has worked with the industry in years past on limiting methane from drilling operations, but monitoring in the Permian still falls far short relative to the scale of the problem. As the Houston Chronicle reports, the Permian basin in Texas only has three air-quality monitors and New Mexico only has two. That is a small fraction of the more than 60 monitors in the Houston area.

EDF plans on using tower monitors in fixed locations as well as mobile monitoring on land and in the air. The environmental outfit expects to release data in early 2020.

One other wrinkle to consider is the startup of the new Gulf Coast Express gas pipeline, expected in the fourth quarter. That could cut into flaring as more gas is put into the new pipeline.

But it could be a temporary solution as drilling continues. “However, it should be noted that the significant number of new well connections in the second half of 2019 might result in a sustained high flaring level, because from an operational perspective, associated gas flaring is normal in the first two weeks following an oil well completion,” Artem Abramov, head of shale research at Rystad Energy, said in a statement. The Norwegian consultancy said that the data for flaring and venting in the Permian is “largely under-reported.”

By Nick Cunningham of Oilprice.com

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