How long will our good fortune last?
Oil and gas revenues comprise two-thirds of New Mexico’s $95 billion gross domestic products. We are lucky to have 30% of the largest oilfield in the world in the Permian Basin. Royalties and severance payments now account for over 50% of total state revenues. The state has over $3 billion more money than we forecast just two years ago. How can we make this last?
The Legislative Finance Committee and others are concerned that these revenues will decline at some point in the future.
So how can we assure ourselves of continued high state revenue?
This state simply extracts oil and gas, and ships it off to Texas for refining and processing. We sell our oil for about $50 billion, but Texas adds another $50 billion in value to our exported oil through refining and petrochemical processing. Texas gets the jobs and the value added, not New Mexico. Adding a petrochemical industrial base could ensure yearly revenues of around $5 billion to New Mexico.
Let’s look at some examples: A single polyethylene plant at world scale uses $350 million per year of ethane, but sells its products for over $2 billion. That’s $1.65 billion of value added for just one plant. If New Mexico had such a plant, the total in taxes, including wage, sales and income taxes, could reach $200 million per year. Similarly, a “scale” ammonia plant uses methane worth about $100 million and sells its products for about $500 million. That’s $400 million in added value that could provide New Mexico with nearly $100 million a year.
The cost to build such plants ranges from $1 billion to $10 billion, paying good wages to as many as 7,000 construction workers over four to five years, plus hundreds of technical employees to operate and maintain each plant thereafter.
Petrochemical plants are concentrated on the Texas and Louisiana coast. There are other reasons why these plants should also be located in the oilfield in southeastern New Mexico.
Located in the New Mexico Permian Basin, the plants would be able to sequester and sell CO2 to be used for enhanced oil recovery. Waste heat from the plants could be used to treat great volumes of “produced water,” a byproduct of oil production. These plants could produce products that we need, such as “blue” ammonia, needed worldwide to enhance agricultural production. Ammonia has been in short supply since the start of the Russia-Ukraine war, and farmers are suffering from high prices for their ammonia fertilizers.
Over the long term, a New Mexico petrochemical industry could participate in key carbon-reducing production. Plants based in the state can produce “green” hydrogen and “green” ammonia. The latter is useful for transporting hydrogen safely to other parts of the world.
Economically, New Mexico could benefit from the jobs, tax revenue and other advantages from these plants. The location of the plants in New Mexico will also help to assure continued high state revenues.
Why should Texas, and not New Mexico, reap such benefits?
