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Infrastructure upgrades anticipate industry rebound

ALBUQUERQUE, N.M. — New Mexico’s oil and gas industry may be in the doldrums now, but state and economic development officials are laying the groundwork for a rapid comeback when markets improve.

Gov. Susana Martinez released a new energy plan for New Mexico in September that calls for broad infrastructure development in the state’s Permian Basin in the southeast and the San Juan Basin in the northwest to facilitate oil and gas development. That includes road improvements, new pipelines to transport crude and natural gas, and possibly a new 100-mile rail line running from Interstate 40 in Gallup to Farmington. It also calls for state efforts to encourage natural gas exports to Mexico, with new pipelines to move fuel to the industrial zone in Santa Teresa along the border for shipment southward.

The plan – the state’s first such comprehensive policy outline in at least 25 years – calls for an “all of the above” strategy for energy development statewide, including promotion of renewable energy. But it recognizes the central role the oil and gas industry plays in New Mexico’s economy, providing about a third of the state’s annual revenue, said Daniel Fine, associate director of the Center for Energy Policy at the New Mexico Institute for Mining and Technology .

FINE: Exports a priority for development

FINE: Exports a priority for development

“It’s based on recognition and support of the oil and gas industry as the core of the energy sector in New Mexico,” said Fine, who served as project leader for developing the state plan. “The policy helps prepare us for future recovery in the fuel price cycle, which will come back in a few years.”

The boom years placed a lot of stress on infrastructure, particularly in the Permian Basin, making new investment critical for the future, said Energy, Minerals and Natural Resources Secretary David Martin.

“Wells get drilled and stimulated, but then it takes a while for infrastructure to catch up, whether it’s pipelines, transmission or electric power to run things,” Martin said. “In the southeast, huge truck traffic and wear and tear on the roads have created safety issues.”

Some of the first investments will be in road repair and modernization, Martin said. This year, for example, $45 million in state capital outlay includes money to expand U.S. 82 in Eddy County from two to four lanes between Artesia, where the Navajo Refinery is located, and Loco Hills – a bustling center of oil and gas development.

Money is also available to finish work on U.S. 64 between Farmington and Bloomfield, which has been under construction for about 10 years.

A new rail line in the northwest is considered a high priority to allow operators in the San Juan Basin for the first time to ship oil and gas to market via existing east-west rail lines that run through Gallup. The new line, which could cost about $200 million, would also allow importation of equipment and supplies into the basin, Fine said.

“The plan is to connect I-40 to Farmington with an inland port, or industrial zone in Farmington, as a center for off-loading incoming pipeline, steel, sand for hydraulic fracturing, and other things,” said Fine, who is now co-chair of the Four Corners Rail Expansion Project. “The railroad would facilitate shipment south out of Farmington for not just oil and gas, but for manufactured goods and agricultural products in the Four Corners Area.”

The project could take five years or more to complete and would be financed primarily by private investors. It hinges on agreements with the Navajo Nation, since much of the line would cross through the reservation, Martin said.

Apart from new pipelines to transport fuels from both of the state’s producing basins, the plan calls for special lines for fuel to flow from the natural gas-heavy San Juan Basin to Santa Teresa as part of a new strategy to revive New Mexico production through sales to Mexico. That’s something Texas has aggressively pursued, since demand is growing in Mexico for natural gas-powered electricity generation, and for use of natural gas in manufacturing and commercial operations.

“Texas has already moved rapidly to establish special ties with Mexico for natural gas sales and New Mexico is just beginning,” Fine said. “But Gov. Martinez has made exports to Mexico and trade in general a No. 1 priority for economic development.”

Industry executives in the San Juan Basin are enthusiastic about potential infrastructure development as transportation bottlenecks have added to production costs. In the San Juan’s newly opened Mancos oil play, for example, operators are generally earning about $13 to $14 per barrel below the market price for West Texas Intermediate – the benchmark for domestic U.S. oil production, said George Sharpe, investment manager with Merrion Oil and Gas Corp. in Farmington.

“A rail line would be a great thing,” Sharpe said. “If we could knock another five bucks off costs, it would make a significant difference.”

State and industry officials, however, will face stiff resistance from environmental and clean-energy organizations opposed to more San Juan Basin development.

“The new state energy plan is really a pretty regressive policy that relies heavily on fossil fuels,” said Eric Jantz, staff attorney with the New Mexico Environmental Law Center in Santa Fe. “With new infrastructure like pipelines, there’s always a near guarantee of leaks, spills and possible explosions throughout the length of the lines. These are dangerous undertakings.”

Erik Schlenker-Goodrich, executive director of the Western Environmental Law Center in Taos, said the state is “doubling down” on fossil fuels.

“It’s very problematic, particularly in the Mancos,” he said. “It’s very haphazard development going on there with no unified plan to address the impacts on local communities, public health and the environment.”

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