The Slick

Big Money, New Laws, Old Divisions

New Mexico’s legislative session, funded by oil and gas, promises fireworks.

Published

January 16, 2023

A pump jack seen in a southeast New Mexico oilfield at sunset. Photo: Daniel A. Leifheit/Getty Images

New Mexico heads into its 56th legislative session on Tuesday, and while much of the early talk from legislators and Gov. Michelle Lujan Grisham centers on money for childhood development programs, other social programs and tax rebates, the big background story of this year’s session is oil and gas money and how the state is going to spend it.

Since 2010, companies have taken ever more oil and gas out of the ground in New Mexico. Oil production alone has grown tenfold in that period, leading to ever-larger fossil fuel revenues for the state. Of a record-busting $9.4 billion budget (a 12% increase over last year), 35% will be funded through oil and gas revenues, according to the Legislative Finance Committee (LFC). During the Lujan Grisham administration, the annually increasing revenue has boosted social spending, including across-the-board teacher pay increases, free college and university tuition, expanded health care coverage and other social programs.

Meanwhile, in the foreground, the big oil and gas drama will likely come over budgets for the two state agencies that police fossil fuel operations; the returning fight for a hydrogen production hub; and a trio of bills that comprise what would likely represent the biggest change to the Oil and Gas Act — the state’s primary petroleum regulating law — since it was ratified in 1935.

Democrats, normally seen as proponents of climate change legislation and antagonistic to fossil fuel interests, once again fill all the top elected slots in state government and hold a majority in the Legislature with 64% of seats in both the House and Senate. Even so, in last year’s legislative session, funding requests from the Governor’s Office to hire more people at the Oil Conservation Division (OCD) and the New Mexico Environment Department (NMED) were stripped from the final finance bill by the Legislature. And the only Democrat to receive more oil and gas donations in the 2022 election than Gov. Lujan Grisham was the chair of the LFC, Rep. Patty Lundstrom, who ran unopposed.

MONEY FOR ENFORCEMENT

Record budgets have not led to increased funding for the state agencies that monitor and regulate the oil and gas industry. And it may not happen again this year.

Lujan Grisham attended both the 2021 and 2022 United Nations Climate Change conferences — known as COP 26 in Scotland and COP 27 in Egypt — to tout the state’s aggressive rulemaking that curbs emissions from oil and gas wells and combats climate change. But New Mexico is also part of one of the largest methane emitting regions on the planet. Emissions from the Permian Basin, located in western Texas and southeastern New Mexico and the largest oil producing region in the country, are a major driver of climate change, so state regulations could help curb a global problem that leads to local climate change catastrophes.

Over the past two years, OCD and NMED implemented strict rules to rein in fugitive emissions from oil and gas facilities (in the case of OCD) and ozone precursors (in the case of NMED), which theoretically should force operators to fix leaking valves, stop routine venting and flaring of natural gas, and generally tighten up their operations. It’s not clear that the rules are working. Kendra Pinto, the Four-Corners indigenous community field advocate for Earthworks, patrols the oil and gas wells in her corner of the state with an infrared camera that can spot invisible hydrocarbons leaking from oilfield equipment. “I find emissions all the time,” she said. “It’s kinda dumb that you can do this million-dollar operation but you can’t protect the local people.”

One reason for those continuing emissions is that OCD and NMED have the rules, but they don’t have the funding to hire people to enforce them. No major oil and gas producing state has as few people monitoring production operations — wells, pipelines, tanks, you name it — as New Mexico. State funding is a tug of war between the Governor’s Office and the Legislature. Last year, Lujan Grisham’s budget request included more inspectors and affiliated staff for both agencies, but the Legislature shot them down on the recommendation of the LFC. Both OCD and NMED again asked for more enforcement staff this year, but in the LFC budget recommendation released at the end of last week, the committee didn’t fund either department’s request for new enforcement personnel, despite oil and gas providing a record state budget.

“Frustratingly, the Legislative Finance Committee is taking a different approach,” said Matt Maez, communications director at NMED.

HYDROGEN

“Saddle up! Because we’re gonna have another round of hydrogen this session.”

With those words, Lundstrom kicked off a last-minute LFC meeting on Jan. 11 titled “Hydrogen Hub Update.” The state has joined with Colorado, Utah and Wyoming to form the Western Inter-States Hydrogen Hub (WISHH), an effort kicked into gear by Lujan Grisham to grab some of the $8 billion dangled by the federal government to create approximately eight such hubs across the nation. The meeting also served as public notice that hydrogen industry development bills will once again be part of the legislative session, after four of them flamed out in last year’s session. Much of the New Mexico money and job creation associated with WISHH would flow through Lundstrom’s district.

Hydrogen is a “clean” fuel in that it releases no greenhouse gases when run through a fuel cell, and far fewer greenhouse gases and less air pollution than traditional fuels when burned. The problem arises from hydrogen’s source, and in the case of WISHH, that would likely be natural gas, which northeast New Mexico has in abundance (two of the hydrogen hubs are to be near natural gas fields). The only way hydrogen from gas could be considered “clean” is if there were no emissions in the natural gas production pipeline — but New Mexico’s production pipeline is leaky and enforcement is underfunded. Clean hydrogen from natural gas also requires a massive carbon capture program to sequester all of the CO2 that would result from hydrogen production. And that doesn’t yet exist.

The meeting brought in the heads of NMED, the Energy Minerals and Natural Resources Department and the Economic Development Department, as well as a representative from Los Alamos National Laboratories, to talk about their work on the WISHH project.

Lundstrom introduced the final speaker, Karl Fennessey, vice president of corporate and public policy at ConocoPhillips, which gave $60,950 to state politicians last year, according to the New Mexico secretary of state’s campaign finance records, including $3,200 to Lundstrom. She said, “We want to hear all about the great ideas that the private sector has.” To this point, all talk had been of hydrogen development in the northwest corner of New Mexico. Fennessey started by saying that his company’s operations are in the Permian Basin, 350 miles away in the opposite corner of the state, which he said “has decades of low cost, low emissions production ahead of it.” However, the Environmental Defence Fund, in its Permian Map investigation, says of the oil and gas region, “Methane [is] escaping at a rate three times higher than the national average.” In fact, NASA stumbled across a massive natural gas “super emitter” there last summer.

Fennessey spoke of his company’s interest in producing “clean” fuels, including hydrogen, and working with the state. “I’m not in a position to tell the state of New Mexico which policies and positions to take,” he said. “But as a company, we believe that many solutions are needed that are lower emissions. This includes traditional oil and gas development.”

After a few public comments both for and against the hub plan, state Rep. Nathan Small wrapped up the meeting, saying, “There will be a significant amount more to come during this session.”

OIL AND GAS REFORM

The third major oil and gas-related legislative effort to land this session will actually be three bills which, taken together, could form the largest change to date of the 1935 Oil and Gas Act, the bedrock law behind all oil and gas regulation in the state. It was originally enacted to protect the state’s most valuable mineral resource, and the changes would shift the act’s focus to include protections for people and the environment as well. Lawyers from the Western Environmental Law Center, Earthworks, the New Mexico Environmental Law Center and the Coalition for Clean, Affordable Energy are drafting the bills.

Together, the Oil and Gas Justice and Reform Act, bad-actors bill and citizens suit bill (the last two not yet named) would cover a panoply of issues. They would dramatically change the requirements for choosing the director of OCD and increase the members on the Oil Conservation Council; establish safety setbacks from public and private buildings for new wells; eliminate penalty caps on rules violations; increase bonding requirements on wells; require that rules incorporate protections for people – especially the state’s most marginalized; deny drilling and well permits to perennial scofflaws; and create a pathway for private people and groups to sue oil and gas production companies when the state either can’t or isn’t willing to.

Eric Jantz, senior staff attorney for the New Mexico Environmental Law Center, worked on the bills and says, “The Oil and Gas Act is an artifact of antiquity, when the sole purpose of the Act was to ensure that all the petro resources were extracted in an orderly fashion … The fundamental premise underlying the Act, i.e, that exploiting the mineral is primary and everything else is an afterthought, has never been changed. Until now.”

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Major oil and gas industry-related bills to look for in New Mexico’s 2023 legislative session include (but are not limited to) the following: