Basin Resources Summer 2015 by Majestic Media

4 Basin resoUrCes

sUMMer 2015

content

Drilling on the navajo reservation BlM’s esther Willetto works with oil and gas companies, land allottees

Don Vaughan puBliSHER

Cindy Cowan Thiele EDiTOR

Dorothy Nobis Debra Mayeux CONTRiBuTiNG WRiTERS

Josh Bishop CONTRiBuTiNG pHOTOGRApHER

tWo Cng Filling stations PlanneD For area

CoMMUnitY Fights to KeeP joBs

Suzanne Thurman DESiGNER

Clint Alexander SAlES STAFF

lacey Waite ADMiNiSTRATiON

For advertising information Call 505.516.1230

www.basinresourcesusa.com Column

BP Center for energy education

Committed to the Basin WPX wants to grow company while focusing on western region

Dargon Class liguid gas carrier

greater use of wood for home heating

Dry gas

net imports of natural gas fall

24 Column

renewables share of U.s. energy consumption highest since 1930s

30 750-megawatt power plant

the Big Move

Column

We need grassroots activism and pressure

real people, real jobs

Companies help move equipment into BP Center for energy education

Billion-dollar natural gas, solar plant on track for completion in 2019

energy news

Majestic Media 100 W. Apache Street Farmington, NM 87401 505-516-1230 www.majesticmediausa.com Basin Resources magazine is published four times a year by Majestic Media. Material herein may not be reprinted without expressed written consent of the publisher. Opinions expressed by the contributing writers are not necessarily those of the publisher, editor or Basin Resources magazine. Every effort has been made to ensure the accuracy of this publication. However the publisher cannot assume responsibility for errors or omissions. © 2015 Basin Resources magazine.

www.basinresourcesusa.com •sUMMer 2015

6 BASIN RESOURCES

BP Center for Energy Education

Construction complete; we’re moving equipment in

After about 18 months of construction, the certificate of occupancy was given to the new San Juan College School of Energy. The task of moving all of the equipment from the satellite facility on 30th Street is proceeding, but will take several months to complete. The new facility, named the, will provide classrooms, bays for students and hands-on training, meeting rooms, offices, an outdoor kitchen area, a coffee bar and an indoor kitchen, all of which will be available to students and visitors. We’re excited about the additional space and the opportunity better to serve students not just from the Four Corners, but students and oil and gas/energy companies from across the country. As with any major project, the new School of Energy would not have been possible without the support of our industry partners, support from the New Mexico Legislature, and support from San Juan College’s president and Board of Trustees. In addition, the college’s physical plant was instrumental in the planning of the facility. Jaynes Corporation completed the project before the deadline and on budget. Tom and Bev Taylor have provided their artistic talents to help us recognize our major donors and Tom Dugan donated an extensive minerals collection, which will be displayed in the lobby of the school. Mr. Dugan also provided funding to recognize all of our military veterans who work in the energy industry. The generosity of the Taylors, Mr. Dugan and our donors has helped us to create a state-of-the art facility that will benefit students and the industry for years to come. It’s not just the financial support that has helped make this project a reality. APS and PNM have donated equipment and employees to help us move the equipment including the simulators that are critical to the training of our students from the

30th Street facility to College Boulevard. This is not an easy task, and takes time and planning. The staff of the School of Energy has been patient during the planning and construction process and has always understood and supported the end result – a facility that will enable them to provide the best training possible for students who want to enter and be successful in the industry. We’ve had the pleasure of giving tours of the new facility to energy companies throughout the country who look to the San Juan College School of Energy as the model for training and education. We’re proud of the facility and of the reputation

* Pacheco 16

ranDy PaChECo DEan of SChool of EnErgy San Juan CollEgE www.basinresourcesusa.com •SUMMER 2015

8 BASIN RESOURCES

DRilliNgon the

Navajo ReseRvatioN

Photos by Josh Bishop

BLMâ&#x20AC;&#x2122;s Esther Willetto works with oil and gas companies, land allottees Dorothy Nobis Basin Resources Esther Willetto is one of the lucky ones. Willetto whose home is in Farmington, N.M., has worked for the bureau of Land Management for more than 45 years, and has the benefit of a regular paycheck. Most weekends find Willetto not in her comfortable Farmington home, but on the Navajo reservation, looking after her family

and others who frequently contact her for help. As a tribal program coordinator and communications officer for the bLM, Willetto works with oil and gas companies that hope to drill on the reservation, includong land that has mineral rights owned by allottees. indian Allotted land parcels often blend with land owned by the bLM and other entities. she acts as liaison between the Navajos and the oil and gas companie,s and for her people

translates English into their native language. Who owns the minerals? A continuing problem with oil and gas companies drilling on the reservation is the question of who really owns the minerals and resources beneath the surface of the land. often, the subsurface is owned by the government, even though the surface land is owned by an individual. the individual can lease the land to oil and gas companies for drilling.

www.basinresourcesusa.com â&#x20AC;˘SUMMER 2015

w BASIN RESOURCES 9 Ken McQueen, vice president, San Juan Region for WPX Energy, offered an explanation of the General Allotment Act of 1887 (Dawes Act) that allowed the federal government to assign tracts of land to individual Indians. “As a result of this act, a large number of 160-acre tracts of Navajo lands were allotted, primarily on the New Mexico side of Navajo lands,” McQueen stated in an email. “This resulted into what today is referred to as the ‘checkerboard,’ where Navajo allotments are interspersed with BLM and state lands. WPX has no operations on the Navajo Nation (land). Our operations are entirely limited to Navajo allotments.” Understanding the lease agreements For those allottees who live on the reservation and don’t speak any language other than their native Navajo, understanding the lease agreements and what it means to them can be a challenge. “Trying to describe fracking is difficult,”

“WPX, as well as other oil and gas companies, participated in this competitive process over the last couple of years to lease the minerals from the Navajo allottees.” — KEN MCQUEEN ViCE prEsidENt WpX ENErgy, saN JUaN rEgioN

Willetto admitted. “The complexity of fracking and all that goes with it isn’t always easy to translate into Navajo, and it’s sometimes hard for Navajos to understand.” The term “fracking” is unpleasant to McQueen. “Fracking is part of the (drilling) process (when leasing the minerals from

Navajo allottees). I find the term unfortunate and misleading. As a technical practitioner, I prefer to refer to the process as ‘hydraulic stimulation,’ as that is more descriptive of the process,” he said. In further explanation, McQueen said the Federal Indian Minerals Office (FIMO) –

Area produces hydrocarbons from 2 types of sedimentary strata The New Mexico Oil & Gas Association (NMOGA) has a recommended procedure for operators regarding water well testing. The intent is to gain and test water wells before and after drilling and hydraulic stimulation (fracking) activities. The pre-test establishes the base line of water quality, which detects any differences in post-activity work. The NMOGA procedure also recommends testing within 0.25 miles of the wellsite. WPX not only tests one mile from the well site, but along the path of the horizontal wellbore as well. WPX requires approximately five acres of surface disturbance for each drill site. Horizontal drilling is able to access much more of the subsurface so fewer surfaces are required to get the same hydrocarbon recovery. Today, one wellbore can recover the same

oil and gas as four to six vertical wellbores. In addition, WPX co-locates horizontal wells on the same surface disturbance. With today’s technology, two horizontal wellbores require the same surface disturbance as 8 to 12 vertical wells. Hydraulic stimulation (fracking) has been used in San Juan County for more than half a century and there is not a single documented instance of aquifer contamination from this stimulation method. The Environmental Protection Agency (EPA) recently reported that hydraulic stimulation is safe. The landmark Environmental Protection Agency report, nearly five years in the making, found that the drilling technique had no “widespread, systemic impacts on drinking water.” “EPA’s draft assessment will give state regulators, tribes and local communities and industry around the country a critical re-

SUMMER 2015 • www.basinresourcesusa.com

source to identify how best to protect public health and their drinking water resources,” said Thomas A. Burke, the EPA’s science adviser and deputy assistant administrator of the agency’s office of research and development. The San Juan Basin produces hydrocarbons from two types of sedimentary strata. WPX divides them into hydrocarbons produced from coal seams (CBM – coal bed methane) and hydrocarbons produced from “conventional sources” (sandstone and carbonates). Almost all of the CBM resources in the San Juan Basin have been drilled and are under production. Most CBM completions do not require hydraulic stimulation; for the remaining development in the San Juan Basin, all of the conventional development in the basin requires hydraulic stimulation to achieve commerciality. Without hydraulic stimulation, future development in the San Juan Basin is not feasible.

10 BASIN RESOURCES which is part of the Bureau of Indian Affairs (BIA), was established to assist individual Navajo allottees with the management of their mineral estate. “WPX, as well as other oil and gas companies, participated in this competitive process over the last couple of years to lease the minerals from the Navajo allottees,” McQueen explained. “FIMO awards the lease on the individual allotments and it is typically based on how much a company is willing to pay for the lease (bonus, based on dollars per acre), the royalty rate the allottees will receive on mineral production from their lease, and the desire of the majority of the allottees.” During the process, WPX held numerous meetings to explain the leasing process, drilling and completion, surface disturbance and surface remediation, McQueen added. Once the leases are awarded, approvals by the New Mexico Oil Conservation Division are required, some of which require public hearings. “WPX holds informational sessions

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BASIN RESOURCES 11 so allottees can ask questions and express concerns,” McQueen added. The most recent session was held June 18, he said. The informational sessions are an important aspect of the process, Willetto said. Many Navajos remain distrustful of the government and are uncomfortable signing any contract without knowing what it says and what that contract means. Willetto helps them understand the agreements and the contracts, but is quick to say she never offers an opinion or advice on whether or not they should be signed. “It’s not my business whether they sign contracts or agreements,” she said. “It is my business to make sure they understand what the contract or agreement states. It’s my business to translate the documents so they can make their own decision.” With the continuing controversy about drilling on the reservation, the necessity for Navajos to understand those agree-

ments becomes even more important. Recently, an allottee who agreed to let an oil and gas company drill on land near their home became irate when the noise and odor of the well were more than they had anticipated, Willetto said. “Even though I had explained that there would be noise, there would be an odor and that flaring would take place, they signed the contract,” Willetto said. “Then, when it all happened, they were angry.” Often, the financial benefit of having a well drilled on allotted land shadows the challenges that come with the well. And it the revenues the allottees receive give them an improved quality of life, Willetto said. Drilling on the reservation? Life of the Navajo on the reservation isn’t always an easy one. They live without electricity and water and their homes are often located far away from paved roads,

SUMMER 2015 • www.basinresourcesusa.com

making it difficult to get to and from town. The beauty of the reservation, the peaceful solitude it provides, and the importance of living near sacred sites is worth the lack of modern conveniences, Willetto explained. But because many of them also live simply and near the poverty level, when oil and gas companies come in with agreements and leases that will provide the financial resources to improve their land, their homes and their lifestyle, many Navajos are willing to endure the odors, the noise and the flaring that comes when a well is being drilled. The determination by others to eliminate drilling on the reservation continues to increase, however. A coalition of conservation groups continues to fight the Bureau of Land Management’s decision to approve almost 240 applications for permit to drill into the Mancos Shale/Gallup formations.

12 BASIN RESOURCES Horizontal drilling, fracking The controversy surrounding the horizontal drilling and fracking of the Mancos Shale differ from the drilling methods used by oil and gas companies in the past. The fracking process drills down into the earth with a high pressure water mixture which forces gas to flow out the head of the well. Opponents of fracking maintain the process contaminates surface and groundwater supplies, emits hazardous pollutants and greenhouse gases, and is a threat to the cultural resources of the Navajo Nation. However, oil and gas companies are bound by specific rules and regulations regarding surface disturbance on native lands, McQueen said. “We conduct a complete archeological review on all of our (WPX) sites,” he said. “Our archeologists hold and renew annual permits with the Navajo Nation Office of Historic Preservation. Additionally, every project we evaluate requires a permit from that same office. Our archeologists follow a carefully prescribed process which requires consultation with local chapter houses to identify any concerns over locations of Tribal Cultural Places (TCP),” he said. “Additionally, our archeologists interview any native residents in the vicinity of our proposed developments in an attempt to identify TCPs.”

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WPX’s archeologists prepare reports of their inspections and submit them to the Office of Historical Preservation for its review and approval, McQueen added. “If the TCPs are identified, our surface locations are moved so the TCPs aren’t disturbed.” Encana Encana, another energy producer that works in the San Juan Basin, has multi-well pads that, along with horizontal drilling, can reduce surface disturbance by 72 percent per section developed, understands the importance and the cultural value of the Navajo land. “The majority of Encana’s multi-well pads have been permitted and constructed through the Bureau of Land Management (BLM) in line with their regulations, rules and best management practice standards,” said Sandy Kent, community relations adviser for Encana, in an email. “In their role as stewards of public lands, BLMtrained analysts carefully review all proposed disturbance in accordance with the National Environmental Protection Act of 1969 (NEPA), which serves as a vehicle to inform the greater public of any proposed disturbance and, more importantly, to protect public lands from environmental and cultural harm.” “Encana believes strongly in the BLM’s NEPA analysis and recommendations, which are fair and equitable to both industry and the greater public,” Kent continued. Willetto said the allottees who agree to work with the oil and gas companies are not the ones complaining about the drilling and fracking. “They’re not saying anything,” she said. “The money they receive from the oil and gas companies is used for renovating their homes, buying new vehicles and upgrading their utilities.” “The money they get from the drilling improves their quality of life,” Willetto added. “There are limited employment opportunities available on the reservation, and they appreciate the revenue.” McQueen agreed with Willetto. “Most of the allottees that we have leased are supportive of our efforts to develop their mineral resources,” he said. “We often see allottees in our Aztec

www.basinresourcesusa.com •SUMMER 2015

headquarters who stop by with questions about our operations. One of the most asked question is ‘When are you going to drill our leasehold?’” The oil and gas companies are required to follow strict state and federal regulations, McQueen added. “At WPX, we do our best not only to meet the regs, but to exceed them. We attempt to minimize surface disturbances and conduct interim reclamation to reduce the surface disturbance after the wells are drilled and completed,” he said. “WPX has voluntarily installed an extensive gathering system to reduce truck traffic, which also reduces dust and road repairs. WPX’s operations in the San Juan Basin have been recognized 16 times since 2000 by state and federal agencies – along with nonprofit groups – for our efforts on environmental stewardship and corporate responsibility.” Encana also understands the need to be good neighbors to the allottees and the land they live on. “The primary objective of Encana’s site selection process is to avoid biologically or culturally sensitive areas if at all possible,” Kent said. “Our collaborative approach requires input from a host of experts. From biological and archaeological consultants to engineers, geologists, surveyors, surface and mineral owners and the governing agencies, each one plays a unique and important role in assuring site selection is a thoughtful and well-informed process. This approach has set the tone for how Encana does business in the San Juan Basin.” Those efforts, however, aren’t enough for some Navajos. A coalition of environmental groups recently filed a federal lawsuit seeking an injunction to stop the BLM from permitting hydraulic fracking and horizontal drilling in the Lybrook area, near the Chaco Culture National Historical Park. The coalition includes Din`e CARE, a non-profit, Western Environmental Law Center, WildEarth Guardians and the Natural Resources Defense Council. In a news release, Sarah Jane White of Dine Citizens Against Ruining Our Environment, stated, “We need to put a stop to fracking in the Greater Chaco region because it impacts the living peoples,

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14 BASIN RESOURCES the water, air, wildlife, medicinal plants and offering points. There are already reports of contaminated water from fracking activities and some people have to buy bottled water.” “Elders have been forced to sign oil and gas leases and this is an environmental justice issue,” White added in her statement. “(The) BLM needs to seriously consider all these impacts before approving any more oil and gas leases.” Encana goes an extra mile to work with the allottees, Kent said. “It’s not uncommon for grazing leases to conduct some type of annual maintenance to the surface including maintenance to grazing ponds,” she said. “Rain and high winds contribute to the sediment that often settles at the bottom of these ponds.” “The sediment at the bottom of these ponds is well suited for reuse on access roads constructed by Encana,” said Steven Merrell, a member of Encana’s San Juan

team. “The materials collected from the ponds and silt traps help build up the roads, and then we cover them with sandstone and gravel. This makes the roads safer during inclement weather and muddy road conditions.” Willetto, however, doesn’t agree that anybody is forced to sign leases with the oil and gas companies. “It’s not the allottees who are upset about the drilling,” she said. “It’s the relatives of the allottees who aren’t receiving the revenues.” The allottees have heirs, sho can number into the thousands, Willetto explained, and it is the heirs who are against the drilling, simply because they aren’t financially benefitting from it. “The allottees want and need the revenue,” she said. “They’re not upset about it and they are signing those leases.” For Willetto, who is an allottee and has signed a lease, it’s not about revenue for her. “I give my share to my family, who needs

it,” she said. “I have sisters and brothers who live on the reservation and they need the revenue,” she explained. Because she is an allottee and understands the process, Willetto wants other Navajos – who have a choice of signing or not signing – to fully understand the lease and what it will mean to them and their family. “I tell them there will be an odor. I tell them there will be noise. I tell them there will be activity at the well site,” she said. “But I don’t tell them whether or not they should sign it. That’s not my job, it’s not my obligation and it is not my decision.” For those allottees faced with that decision, Willetto knows it’s not an easy one. And she also understands both sides of the issue. “I understand where the oil and gas companies are coming from, and I understand the concerns of my people. And everyone has to make their own decision about what’s best for them.”

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Pacheco

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the School of Energy has as a leader in training and education for the industry we serve. Our other satellite location, at 800 South Hutton Road will be the home of the School of Energy’s CDL program, which will be the only CDL facility in New Mexico. We’re proud of that program and of the training it provides for students. While it has been hard work, countless hours of planning and construction, and some stress in meeting deadlines and budget, it has all been worth it. I look forward to getting the move completed and ready for students in the fall. A new facility is great and we’ve put a lot of effort into making sure the students have all they need to get the training necessary for the jobs they want in order to provide for their families. For us, it’s not about nicer classrooms, bigger bays or a comfortable coffee area. It’s about the success of our students and the industry that employs them. A grand opening of the new school will be held this fall, and I hope everyone will come by, take a tour, and see how San Juan College continues to serve the community.

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18 BASIN RESOURCES

Committed to the San Juan BaSin WPX wants to grow company while focusing on western region Debra Mayeux Basin Resources WPx energy is dedicated to continued development and possible growth in the San Juan/Gallup basin over the next few years. This comes as the company focuses on efficiency in drilling and the “tremendous potential” in the region, according to CeO richard Muncrief. “The San Juan/Gallup interval has taken off,” Muncrief said. “We are real pleased with that growth.” WPx has seen 66 percent growth in the San Juan and Willett basins with a “spectacular” looking increase in the future, according to Muncrief, who also said there will be challenges in 2016. “We’ll all do what we need to do to keep some rigs in here and keep a vibrant economy out here.” The San Juan Gallup is an interesting play for WPx. “There’s not really a lot of people talking about it. I think we’re really on the forefront, where we can share the market” said Muncrief, who pointed out the area is “delivering some of our higher returns.” Third quarter profits reported for WPx show the company had an unaudited net income of $67 million for firstquarter 2015 vs. $18 million a year ago. Net income from continuing operations attributable to WPx energy was $22 million in first-quarter 2015, the com-

Courtesy photos pany reported. “On an adjusted basis, first-quarter 2015 income from continuing operations was $19 million despite materially lower commodity prices,” the company reported. “a year ago, WPx had adjusted income from continuing operations of $26 million. … WPx’s operational and financial focus on margins helped overcome commodity prices, that drove product revenues, were down $220 million,

or 42 percent, vs. a year ago. Oil prices were down more than 50 percent.” Well costs Muncrief said the company continues to move the needle on well costs, operating costs, production and deal flow. This was a tremendous quarter for us when you consider just how far commodity prices fell and what we still achieved in earnings per share.”

www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 19 WPX set a new production high surpassing 50,000 barrels per day, and it reduced stimulation costs in the San Juan Gallup oil play by 50 percent and increased the spud-to-spud time by 17 percent. “We’re getting more efficient, building out our own infrastructure. We’ll average three rigs this year – two down south and one in the Rosa area,” Muncrief said. “Efficiency drives performance and performance drives people.” The only problems with the San Juan Gallup play come from the two impediments in the region. The first is permitting time, the second is the differentials – infrastructure and the need for gathering and the need for additional pipe, Muncrief explained. Despite this, the company reported building within the basin by building “out a new oil and gas and water gathering system” and it installed 95 miles of pipeline with 37 miles constructed during the first quarter and additional plans to construct 55 miles of pipe this year to expand its efforts in the San Juan Basin. “We look at the cost. We look at the well performance,” Muncrief said. “We think we can compete with any play. … We run our economics and these basins have to compete against each other. You’ve got tremendous rock, you have tremendous potential, yet you’ve got a very disadvantaged differential and that

“The San Juan/Gallup interval has taken off. We are real pleased with that growth.” — RichaRd muncRief ceO WPX eneRgy

makes it less competitive.”

system, according to Ken McQueen, vice president for the WPX San Juan Region.

Infrastructure One advantage, however, is the infrastructure that exists in the San Juan Basin. “Infrastructure matters. Infrastructure goes from gas processing plants, refineries, pipelines, roads, power; there’s a lot of things that roll up into the term infrastructure,” Muncrief said. “If you look at San Juan Basin from a high gas processing perspective it has tremendous infrastructure already established that will give the San Juan Basin some competitive advantages in future years.” WPX has capitalized on that infrastructure and worked to decrease the length of time it takes to drill a well. The less time it takes, the more efficient the

Efficiency In late March, the company had completed its 78th well with an eight-day spud-to-rig release. “We’ve made significant progress.” Two years ago, WPX had just finished its third well and it took the company 48 days to get it drilled. The difference is significant when it comes to the efficiency Muncrief referenced. The company also has increased its acreage from 31,000 to 85,000 acres. “This has worked to our advantage as far as forming units and drilling wells,” McQueen said. In looking at the San Juan Gallup play,

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20 BASIN RESOURCES McQueen said people are mainly drilling in the southern portion where there is oil. The only company drilling in the dry-gas area is Red Willow, he said. “Even if you look in the wet gas area you don’t see a lot of additional activity. The primary focus has been pursuing the oil development on the south side of the basin.” The main concern for WPX as it moves forward with drilling in the San Juan Basin is remaining efficient with its timing, and each year has brought about more efficiency, according to McQueen, who said in the first quarter of 2015 the average “spudto-rig release and spud-to-spud times” were 10.3 days. “We’ve had a number of wells below nine days.” He believes an eight-day drill could be achieves if the company was not cementing the production lines into place. “The rigs we have, we’ve adopted pad drilling,” McQueen said. The best skids

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BASIN RESOURCES 21 WPX can achieve is two days, and the company also brought in a walking rig. “We were able to move from one hole to the next hole and start only in nine hours.” The maximum rig count has been three weeks in the basin with the exception of Encana, and that company had one week of four rigs. There is a cumulative rig count of a maximum of six rigs in the basin. While analysts often ask about how many rigs are running, McQueen said he likes to show that it is not the number of rigs, but what is getting done in the basin. The WPX rig fleet is becoming more efficient, which is visible by comparing the obtainment of 15.1 wells the first year the company was active with 29.5 wells in 2015. “We expect to see that improve as we move through time,” McQueen said. Laterals and flaring WPX also has demonstrated an ability

to drill laterals, and according to McQueen the company is moving forward with drilling longer laterals up to 1½ miles. The company also has decreased flaring in the region by building facilities and putting pipelines in place before the drilling rigs arrive. “We’re able to get our gas in delivery mode much earlier,” he said. WPX also has its own gathering system in the Lybrook area. “We’re able to recently deliver high nitrogen level wells with the recently delivered wells, which brings the nitrogen level down.” Challenges: Permitting, getting the product out The greatest challenge is in permitting and being able to get the product out of the basin. While there are roads in the San Juan Basin, and rail in other parts of the country, Muncrief said the best way to ship

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crude oil is through pipeline, and the greatest boon for the energy industry would be the ability to export oil and gas outside of the country. There has been exportation of natural gas to Mexico. “That’s going to grow,” Muncrief said. The Mexican government wants to use “cheap U.S. gas,” and is ready to build pipelines to access that gas. The federal government could help the industry by looking to making exportation and permitting easier and then if the demand is there the product will move out. “We want to build the premier western energy producer,” Muncrief said. “We’ve focused on streamlining portfolio, volume growth – overtime that will improve our margins and we will be able to compete with a lot of the larger operations. We labeled our strategy for 20-20 vision – that is to triple the strength of our company by 2020.”

22 BASIN RESOURCES

Two CNG filliNG sTaTioNs plaNNed for area

Bubble City, 4CORE in Durango facilities plan to go online by mid-2016 Debra Mayeux Basin Resources Two Compressed Natural Gas, or CNG, vehicle filling stations could go online in the Four Corners by mid-2016. One would be located at bubble City on the bloomfield Highway and the other in Durango, Colo., according to ray Hagerman, executive director of Four Corners economic Development. “We got very involved in an effort to try and locate CNG infrastructure about a year

and a half ago,” Hagerman said. He began working with Durango-based Four Corners Office of resource efficiency, or 4COre, and began discussion about how to best put CNG infrastructure throughout the region. Since that time, Hagerman said, Durango has been working to put in a filling station and may have one complete by early 2016. Oklahoma City, Okla.-based energy company Spark Natural Gas was awarded in February a grant from the Colorado energy Office’s alternative energy funds, ac-

cording to Sarah rank, program coordinator at 4COre. Colorado offers incentive of upwards of $500,000 for those seriously interested in bringing CNG stations online. The state has been working on developing a natural gas vehicle corridor since 2011, when Gov. John Hickenlooper signed a memorandum of understanding with the state of Oklahoma, vowing to increase CNG stations, promote CNG vehicles, and to change state-used vehicles to CNG. New Mexico also signed the agreement.

www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 23 Since that time Colorado developed incentive programs and mapped out the natural gas vehicle corridor, which provides for CNG filling stations in Archuleta, La Plata and Montezuma Counties, according to the Colorado Energy Office. Colorado even offers up to $8,500 in incentives for converting vehicles to natural gas. Once Spark Natural Gas received the funds, it found a site location, but that fell through. A second site was located at the Exxon across from the Wal-Mart on Camino del Rio. “They work closely with Brennan Oil. Spark was able to work with them to get a place together to locate a CNG fueling station at that site,” Rank said. The only thing the company is waiting on is to hear back from supplier, Atmos Energy with regards to the cost and delivery pressure. After receiving that Spark will be able to finalize the site plan and shoot for an opening in the summer of 2016, Rank said.

While Colorado has a strong incentive program in place, New Mexico does not have incentives for CNG fueling stations, but that has not stopped James Tabit, owner of Bubble City, according to Hagerman, who said the New Mexico Gas Company has infrastructure in place to provide natural gas to Bubble City, so it can begin providing fuel to CNG vehicles. “I believe they are about ready to open – maybe in early summer,” Hagerman said. Tammy Morris, manager of Bubble City, confirmed the station soon will offer compressed natural gas, but did not have an exact date for service. This could be great news for government entities and businesses with fleet vehicles wishing to save money on fuel. One such entity is San Juan County, according to CEO Kim Carpenter, who has been interested in natural-gas vehicles for a long time. “We have an abundance of natural gas. I’d

(505) 326-1195 SUMMER 2015 • www.basinresourcesusa.com

like to tap into that resource,” Carpenter said. He has spoken with area school districts about converting buses as well as with various delivery companies. “UPS has indicated they would like to do the same,” Carpenter said. The issue has long been the lack of a pumping station to fill vehicles. Bubble City could be the answer to some of the accessibility problems. One other fork in the road, however, is the cost of oil versus natural gas, according to Hagerman. “A lot people got excited about this when oil prices were $95 to $100 a barrel. When oil dropped, gasoline prices dropped,” Hagerman said. “When oil prices go up, you’ll see everybody jumping on the CNG bandwagon.” Of course that would be a good thing for San Juan County. “Anything we can do to increase the use of natural gas, we are all for it,” Hagerman said.

www.sjunitedway.org www w.sjunitedway y.org

24 BASIN RESOURCES

rEal pEOplE, rEal jObs

How to lose the war on fossil fuels The recent high profile fight over the future of the San Juan Generating Station and the San Juan Mine has finally gotten the attention of the masses in San Juan County. For those that have been completely asleep the past two months, the New Mexico Public Regulation Commission PRC will rule within the next month (or so) as to whether to accept a Stipulation Agreement that will allow the power plant (and thus the mine by extension) to continue operating until 2022 and beyond. The shutdown of half the capacity – two units – is assured. What we in San Juan County want and need is for the remaining two units to remain operational. We need the PRC to vote for acceptance. Although the Stipulation Agreement has already been approved by the EPA, the operator (PNM) and the New Mexico Environmental Improvement Board, with the negotiations of same beginning over four years ago, the last hurdle is the PRC approval. As we know, the PRC consists of five regionally elected commissioners, and elected officials primarily respond to public opinion. Once we engaged with the San Juan County community as to the high stakes in this decision through the Real People Real Jobs NM campaign, the outpouring has been overwhelming. More than 5,000 people signed a petition; a Facebook page was liked over 4,000 times, with dozens of pictures of miners and utility workers feeding directly to Commissioners Lynda Lovejoy and Karen Montoya.

ray HagErman CEO FOur COrnErs ECOnOmiC DEvElOpmEnt The result was more time given to PNM (the operator) to provide the necessary documents to the Commission, but the 4-1 vote gave insight into what the final vote will be. If we ultimately win this fight, it will be due to executing a plan that is exactly the opposite of the following tongue-incheek guide to losing the battle over not just coal but all fossil fuels – oil and gas included: 1. Ignore the war because it’s dull and boring. The Sierra Club’s “Beyond Coal” campaign is not being fought just with old hippies and professional protesters showing up at rallies. This is hand-to-hand combat at PRC-type hearings all over the country. The barrage of regulations has made coal nearly impossible as a competitive fuel, and threatens the same for oil and gas. Meantime, the opposition is using this landscape to make economic arguments against same. These arguments are then made in dull and boring hearings by lawyers and “expert interveners” who make it all sound so straightforward. Further, the lack of competitive advantages causes the corporate bean counters to agree and thus very strange bedfellows arise to fight against fossil fuels. It’s human nature to get

bored these days, and when we get bored we stop fighting and/or being vigilant – and we lose another battle. 2. Focus on the numbers and the intellectual arguments and ignore the real people affected. Odd as it sounds, real people still do most of the work in this country, and real people still pull the levers in a voting booth. That being the case, whether a public utility regulatory body is elected or appointed, they are still affected by voters, either directly or indirectly. When elected officials have to look at the real faces of the affected workers and their families, it’s more difficult to make an adverse decision. So let’s take a page from the radical manifesto and make it very personal. If the opposition is making intellectual arguments, then we should make emotional appeals. Why do you think Apple sells so many products? They don’t tell you the marvelous technical specifications of the device, they tell you it will help you pick up your kids on time. 3. Keep electing the same old fence-riding elected officials. Time is coming, and very soon, when elected officials are either dedicated to affordable and reliable energy – which is the principle upon which America became an economic power – or they aren’t. In addition, this is becoming a war of white collar against blue collar, federal versus state, urban against rural, and capitalism versus something else. It’s time for fossil fuel advocates to rise up and for us to support them. The economics of fossil fuels will be a more level playing field if we can get some of these arbitrary laws and regulations repealed and elect judges who will declare some administrative

www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 25 actions to be unconstitutional. 4. Stop making new friends. I know this sounds like heresy compared to the rest of this article, but labor and management need to find the common ground in this. When we had the press conference in Albuquerque recently supporting the PNM plan, we had business and union leaders on the same side of the table making speeches in support of the same thing. When is the last time you saw that happen? The attack on fossil fuels is an attack on affordable fuel, organized labor and corporate interests, all at the same time. We need consumers to rise up, labor and management and even retail store owners to rise up to defend against what the anti-carbon movement is doing to cities and towns all over America. 5. Abandon the argument with the next generation.

Radical environmentalists have so infiltrated the thinking of our children that our kids now equate coal with “bad” and renewables as “good” with no room for analytical thinking, other viewpoints, grid physics or the concepts of peaks and base loads. Further, instead of crime, terrorism, human trafficking, drugs, etc., being the focal point of how best to change the world, we now have even Pope Francis talking about climate change. Why can’t we talk about the value of renewables in their proper context, like on our houses and other micro-level efficient ways and not an either/or? Further, even if we sell out to renewables, why can’t the conversation shift to a two-decade transition instead of shutting down coal now? And why aren’t we talking to our kids about this? This needs to be a diversified millennial versus mil-

SUMMER 2015 • www.basinresourcesusa.com

lennial conversation, not just old white men versus everyone else. One thing I’ve learned about San Juan Basin folks is that while they aren’t much on picking fights, they are pretty good about ending them. Let’s DON’T do the things I’ve listed and focus on keeping up the good fight about defending fossil fuels. Ray Hagerman is the CEO of Four Corners Economic Development covering all of San Juan County. He has been instrumental in obtaining San Juan County’s ACT Work Ready Community certification and recently helped launch the Real People Real Jobs NM campaign to support fossil fuels employment. Coming from Ohio, Ray hopes to help bolster the existing manufacturing base and continue strengthening the energy and power generation industries while diversifying into other industries opportunistically. He lives in Aztec with his wife Dona.

26 BASIN RESOURCES

Community fights to keep jobs PNM ask Public Regulation Commission for Aug. 4 extension Dorothy Nobis Basin Resources the controversy surrounding PNM’s san Juan Generating station has been swirling for years. Four coal-fired units at the san Juan Generating station provide 1,800 megawatts of power to 2 million New Mexico PNM customers. the Environmental Protection Agency, however, has set requirements that would require coal-fired power plants to be retrofitted with a technology to cut down on haze by 2016. the Clean Air Act requires coal generation stations to repair the air quality by 2064, returning the air quality to what it was before the beginning of the industrial Age – especially stations that are located in areas that include national parks. Among the national parks in the Four Corners that could be affected by the Act are Chaco Canyon National historic Park, Mesa Verde National Park, Monument Valley and the Four Corners Monument. Every 10 years, states are required to submit plans stating how they plan to meet the demands of the act. When New Mexico missed that requirement in 2007, PNM and the san Juan Generating station became a target in the crosshairs of the EPA. the EPA asked the plants to retrofit its units with selective Catalytic reduction systems (sCrs), which PNM said would cost

$750 million. the EPA, however, argued that the cost would be no more than $350 million. the debate began and the controversy continued. Among issues cussed and discussed about the plant, which is located near shiprock, aren’t just the air quality and the possibility of an increase in costs to the millions of PNM customers who depend on the plant for power. For many in san Juan County, it

is the jobs that could be lost when the two units are shut down in 2017. PNM files for extension on June 3, PNM requested an extension in order to finalize agreements with a Colorado coal company and new partnerships under an ownership restructuring. one of the plant’s new owners, the city of Anaheim, Calif., “may be unable to approve and execute the ownership restructuring Agreements until Aug. 4, 2015, due to the requirements of its public notice and

www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 27 approval process,” PNM said. “If Anaheim is unable to execute the agreements by August 1, 2015, PNM requests to be allowed to make a supplemental filing, no later than August 6, 2015.” “This extension is reasonable and will allow PNM to complete this very complex process which would result in a large cost savings for customers, dramatically cut the company’s use of coal, and increase the use of cleaner energy resources, including solar generation,” Pat Vincent-Collawn, PNM Resources’ chairman, president and CEO, said in a news release. In a statement, Vincent-Collawn said, “This extension is reasonable and will allow PNM to complete this very complex process, which would result in a large cost savings for customers, dramatically cut the company’s use of coal, and increase the use of cleaner energy resources, including solar generation.”

“This extension is reasonable and will allow PNM to complete this very complex process...” — Pat vincent-collawn chairman, President & ceo Pnm resources

“We have made truly remarkable progress and we are grateful that the (New Mexico Public Regulation) Commission is taking the time to fully consider the plan for San Juan,” Vincent-Collawn said. “We are requesting the Commission grant us the extension,

SUMMER 2015 • www.basinresourcesusa.com

which would not burden any of the parties in the case, yet would ultimately benefit customers and the state as a whole.” The commission issued an order requiring PNM to file the agreements by July 1. Commissioner Linda Lovejoy,

28 BASIN RESOURCES

“PNM has created a huge campaign wherein every commissioner’s office has been flooded with e-mails...” — Linda Lovejoy commissioner

however, issued a warning to PNM. “As I stated in today’s (May 27) open meeting, it is time to send a very stern message to PNM,” Lovejoy stated in a media release. “PRC staff and this commission have worked very hard in keeping with a standard time schedule to avoid unnecessary delays, and the piecemeal documents provided by PNM still are not producing the most important information up to this point.” Lovejoy said PNM may request an extension to the deadline, but

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no later than August 1. “PNM has created a huge campaign wherein every commissioner’s office has been flooded with e-mails after PNM has raised the hopes of those living in northwest New Mexico when, in fact, it has been PNM who has failed to adhere to a standard timeline,” Lovejoy added in the release. FCED launches campaign Four Corners Economic Development, a local non-profit organization that promotes and encourages economic growth in San Juan County and the Four Corners, started a “Real People, Real Jobs” campaign to encourage the Public Regulation Commission to approve the San Juan Generating Station agreement. Ray Hagerman, chief executive officer of 4CED, said more than 5,000 people have signed petitions supporting the agreement. In addition, 4CED’s Face book page has received more than 4,000 “likes” and many miners and utility workers have posted photos of themselves and their families, and have shared their stories. “We don’t know exactly how many phone calls, letters and e-mails (PRCA) commissioners have received, but one commissioner said we were “blowing up” her emails,” Hagerman said of the campaign. Hagerman said more than 700 jobs will be lost if the commission refuses to approve PNM’s plan. “The Farmington MSA (Metropolitan Statistical Area) has been recorded as ‘America’s fastest shrinking city’ in a USA Today article,” Hagerman said. “We are already in trouble. What will happen if we lose an additional 740 jobs?”

www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 29 “PNM is not asking to produce more power using coal,” Hagerman added “They are asking to reduce coal usage by 50 percent. There has to be a transition into alternative fuels and this is one of the steps PNM is taking to do so. It will also allow them to retain all of their current 340 employees and the mine will continue to operate and employ some 400 people.” Community speaks out Georgia Cortez worked for PNM for 25 years, at the San Juan Generating Station plant and at the company’s corporate office in Albuquerque. Cortez was an organizational consultant and worked in many areas of the company and with its workforce. “I believe PNM has always been environmentally conscious regarding the output of its operating units,” Cortez said. “PNM has invested in environmental emission controls and has asked that its employees also be good stewards of the environment, partici-

pate in the community, and to practice operating procedures that reduce emissions.” “Part of my job at PNM was to facilitate teams through main aspects of continuous improvement,” Cortez added. “I worked with a diverse team of individuals at the plant to put together an environmental philosophy and to identify operating procedures that help reduce emissions on startup and shut down of units. PNM does care about our environment and it has invested in its units to install environmental controls.” “I don’t agree with the shutdown of the two units and I believe it will have negative impacts to our community,” she said. Randy Pacheco is the dean of San Juan College’s School of Energy. The school has enjoyed a partnership with PNM for years, providing training determined by PNM to assist contractors working for the company to be in compliance with PNM’s required Safety Orientation Program. “My students won’t have the opportunity

SUMMER 2015 • www.basinresourcesusa.com

for gainful employment locally,” Pacheco said, “if units are shut down. The partnership between the School of Energy and PNM has been a good one and has provided our students with the opportunity to earn a good salary to take care of their families, while not having to move away from home to do so.” For others, however, the jobs that may be lost if the units are shut down, the environmental impact to the community and to the area, is just as important. Mariel Nanasi, executive director of the New Energy Economy Group, has been quoted in several articles about the PNM proposal as saying that “coal and nuclear (are) big expensive behemoth plants.” The New Energy Economy Group is one of several that are fighting PNM’s proposal for the coal plant. The New Mexico Public Regulation Commission is expected to make a decision on the proposal later this summer.

30 BASIN RESOURCES

Renewables share of U.S. energy consumption highest since 1930s Renewable energy accounted for 9.8 percent of total domestic energy consumption in 2014. This marks the highest renewable energy share since the 1930s, when wood was a much larger contributor to the domestic energy supply. Renewable energy use grew an average of 5 percent per year over 2001-2014 from its most recent low in 2001. The increase over the past 14 years was in part because of growing use of wind, solar, and biofuels. Wind energy grew from 70 trillion Btu in 2001 to more than 1,700 trillion Btu in 2014. During the same period, solar energy (solar thermal and photovoltaic) grew from 64 trillion Btu to 427 trillion Btu, and the use of biomass for the production of biofuels grew from 253 trillion Btu to 2,068 tril-

lion Btu. Hydroelectricity was the largest source of renewable energy in 2014, but hydro consumption has decreased from higher levels in the mid-to-late 1990s. Wood remained the second-largest renewable energy source, with recent growth driven in part by demand for wood pellets. In 2014, slightly more than half of all renewable energy was used to generate electricity. Within the electric power sector, renewable energy accounted for 13 percent of energy consumed, higher than its consumption share in any other sector. The industrial sector used 24 percent of the nationâ&#x20AC;&#x2122;s renewable energy in 2014. Nearly all of that renewable energy was biomass, which included wood, waste, and biofuels used in manufacturing processes as well as in the production

of heat and power. The production of biofuels results in energy losses and coproducts, which are also included in industrial consumption of renewables. About 13 percent of the renewable energy used in the United States is now consumed in the transportation sector, which experienced the largest percentage growth in renewable consumption from 2001 to 2014. The growing demand for liquid biofuels, including both ethanol and biodiesel, pushed renewables to nearly 5 percent of the sector's energy consumption in 2014. A greater use of wood for home heating and steadily growing installation of solar systems are the main contributors to increasing renewable energy consumption in residential buildings and, to a lesser extent, in commercial buildings.

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32 BASIN RESOURCES

THE

Oil and gas companies help move equipment into BP Center for Energy Education

BIGMOVE Dorothy Nobis Basin Resources

When the san Juan College school of Energy began preparations for moving into its new facility on College boulvevard, it meant more than packing boxes and loading them in a truck. this move isn’t that easy. Five large simulators are critical to the training for students in the school’s industrial Process operator Program. Each simulator had to be disassembled, put in the back of a trailer and reassembled once it got to the new facility. And if that wasn’t enough, the simulators were in the basement of the school of Energy’s satellite site on 30th street. “We had to have a crane move each simulator from the basement to a trailer, so it could be transported to the new school,” said randy Pacheco, dean of the school of Energy. “the crane put the simulators on trucks we used from our CDL (Commercial Driver’s License) program and it took several trips.” Simulators critical to training the simulators, each of which weighs about 800 to 1,000 pounds, are critical to the training of the student of the industrial Process operator Program (iPoP). students learn both the theoretical and practical www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 33

aspects of process operations and, when they’ve completed training, are prepared for entry-level positions in various industries. “Many of our former students work at the power plant and gas processing facilities,” Pacheco said. The School of Energy has enjoyed the partnership of many of the industry leaders in the oil and gas field. Because of those partnerships, volunteers from Arizona Public Service (APS), PNM and Calder Services, helped move the equipment. “Calder Services helped us move all of our oil field equipment from our site at 800 S. Hutton to our new facility,” Pacheco said. “They moved separators, compressors and welders and it took them several days.” Three into one The 65,000-square-foot building brings together, under one roof, three satellite offices for the School of Energy. The offices were on South Hutton Avenue, 30th Street and at the Quality Center for Business on the San Juan College main campus on College Boulevard. Construction on the project began in February of 2014. The planning and timing of the construction was carefully scheduled by the Jaynes Corp. team.

While Pacheco said he appreciated the help of APS, PNM and Calder, he really wasn’t surprised when the companies offered their help. “We’ve always been fortunate at the School of Energy to have the support of the community,” he said. “The industry has been very supportive of the programs we provide students. They know that when a student completes our programs, they have the training they need to be successful in the oil field. Our safety training is one of the best in the country and our instructors are not only knowledgeable about what they teach, they’ve all worked at – and many of them retired from – the jobs they’re training our students to do.” Great example of public/private partnership In an earlier story about the new facility, Ken Hare, a longtime member of the San Juan College Board of Trustees, believes they “got it right.” “The new School of Energy serves as a model for Hare for higher education,” Hare said. “Over half of the $15 million raised has come from the private sector to meet local, state, national and international workforce needs in the energy sector.” “Randy Pacheco is to be congratulated

SUMMER 2015 • www.basinresourcesusa.com

for developing an early vision and a strategic goal several years ago to establish San Juan College as a leading energy workforce development training center in the world,” Hare continued. “The new School of Energy is a monument and a milestone in achieving that strategic vision. San Juan College is now recognized as a global leader in energy workforce training and the new School of Energy will enhance that reputation even further,” Hare said.

34 BASIN RESOURCES

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BASIN RESOURCES 35 Critical need for training The generosity of APS, PNM and Calder gave Pacheco not only the resources needed to move the equipment; it also saved SJC thousands of dollars. “ “But while I appreciate the financial savings, what is more important to me is the continuing support of these companies – and so many others – because they understand how critical our train-

ing is for students who want to work in the oil field and earn a decent salary that will help them provide for their families.” “APS, PNM and Calder gave us employees, trucks and trailers to help make this major move almost easy,” Pacheco added. “Moving all that equipment had been a concern, but with their help, we did it in about a month and without any

SUMMER 2015 • www.basinresourcesusa.com

mishaps.” “Those partnerships are what I appreciate most about the oil and gas industry in the San Juan Basin,” Pacheco said. “And when I talk about ‘partnerships’ I’m also talking about the friendships that evolve because of the work we do together. The School of Energy would not be the success it is without the continuing support of the oil field.”

36 BASIN RESOURCES

Dragon class liquiD gas carrier Marcellus ethane moves one step closer to Europe A major European petrochemical manufacturer is taking steps to begin importing ethane from the United States this year. Over the past several years ethane production in the United States has increased from 869,000 barrels per day (b/d) in 2010, to 1,081,000 b/d in March 2015. In addition, U.S. ethane prices have declined compared with other fuels. In recent years, the growth in production has spurred ethane pipeline exports to Canada and investment in the domestic petrochemical industry. And now, one of Europe’s largest petrochemical companies, Ineos Olefins & Polymers, headquartered in Switzerland, is close to completing the first transoceanic ethane shipment from the United States. On May 28, Ineos Olefins & Polymers Europe, with ethylene cracker operations in Scotland and Norway, and its partner Evergas, a company specializing in seaborne petrochemical and liquid gas transportation, took delivery of the first ship in a planned eight-vessel fleet of Large Gas Carriers (LGC). These vessels will primarily transport ethane produced in the Marcellus and Utica shale plays to Europe from the Mariner East project/Marcus Hook Industrial Center in Pennsylvania, under a 15-year contract between Ineos-Europe and Evergas. Though designed and constructed for transoceanic shipment of ethane, the ships will be capable of transporting other hydrocarbon gas liquids (HGL), as well as liquefied natural gas (LNG). These ships measure 591 feet long and 87 feet wide, and have a draft of 30 feet. They are the largest ethane carriers in pro-

duction to date and have a rated capacity of 971,162 cubic feet, or 175,000 barrels. These ships are designated as the Dragon class, and are identified by Evergas as among the most technologically advanced liquid gas carriers on the seas today. Manufactured by

Sinopacific Offshore & Engineering, a shipyard in China, these LGCs use LNG for propulsion and cargo handling, systems supplied by Wärtsilä, a Finnish manufacturer, to optimize performance for ship’s systems and cargo management. Ineos Europe was the first European company to contract for ethane feedstock from the United States. In 2012, Ineos contracted with a Marcellus-based supplier, Range Resources, for ethane, and with Sunoco Logistics for the associated transportation capacity on the Mariner East project that would move the ethane east from the Appalachian Basin for transatlantic shipment. As an anchor shipper, Range Resources has firm transportation of 40,000

www.basinresourcesusa.com •SUMMER 2015

b/d (20,000 b/d ethane, 20,000 b/d propane), and will have storage capability for both ethane and propane at Marcus Hook. The Marcus Hook Industrial Complex, located along the Delaware River south of Philadelphia, Pennsylvania, was formerly a Sunoco refinery and is now being used as a terminal and dock facility. It is operated by Sunoco Logistics Partners, with additional hydrocarbon gas liquids (HGL) related manufacturing, including a planned propane dehydrogenation plant. The Mariner East 1 and Mariner East 2 pipeline projects are designed to deliver HGL from the Marcellus and Utica shale areas in western Pennsylvania, West Virginia, and eastern Ohio to Marcus Hook. Mariner East 1 began operations in fourth-quarter 2014, delivering propane to Marcus Hook, and is scheduled to be fully operational for delivering up to 70,000 b/d of propane and ethane in the second half of 2015. Mariner East 2 is expected to begin operations in fourth-quarter 2016 with an initial capacity of 275,000 b/d for both domestic and international customers. With the first Dragon class vessel entering operation next month, and Ineos upgrading its ethane terminal in Rafnes, Norway, to handle these ships starting in mid-to-late 2015, ethane shipments from Marcus Hook to Europe are expected to start during the second half of 2015.

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Greater use of wood for home heatinG Renewables share of US energy consumption highest since 1930s Renewable energy accounted for 9.8 percent of total domestic energy consumption in 2014. This marks the highest renewable energy share since the 1930s, when wood was a much larger contributor to the domestic energy supply. Renewable energy use grew an average of 5 percent per year over 2001-2014 from its most recent low in 2001. The increase over the past 14 years was in part because of growing use of wind, solar, and biofuels. Wind energy grew from 70 trillion Btu in 2001 to more than 1,700 trillion Btu in 2014. During the same period, solar energy (solar thermal and photovoltaic) grew from 64 trillion Btu to 427 trillion Btu, and the use of biomass for the production of biofuels grew from 253 trillion Btu to 2,068 trillion

Btu. Hydroelectricity was the largest source of renewable energy in 2014, but hydro consumption has decreased from higher levels in the mid-to-late 1990s. Wood remained the second-largest renewable energy source, with growth driven in part by demand for pellets. In 2014, slightly more than half of all renewable energy was used to generate electricity. Within the electric power sector, renewable energy accounted for 13 percent of energy consumed, higher than its consumption share in any other sector. The industrial sector used 24 percent of the nation’s renewable energy in 2014. Nearly all of that renewable energy was biomass, which included wood, waste, and biofuels used in manufacturing processes as well as in the production of heat and power. The

production of biofuels results in energy losses and co-products, which are also included in industrial consumption of renewables. About 13 percent of the renewable energy used in the United States is now consumed in the transportation sector, which experienced the largest percentage growth in renewable consumption from 2001 to 2014. The growing demand for liquid biofuels, including both ethanol and biodiesel, pushed renewables to nearly 5 percent of the sector's energy consumption in 2014. A greater use of wood for home heating and steadily growing installation of solar systems are the main contributors to increasing renewable energy consumption in residential buildings and, to a lesser extent, in commercial buildings.

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BASIN RESOURCES 39

Dry gas

Net imports of natural gas fall to lowest level since 1987 U.S. net imports of natural gas decreased 9 percent in 2014, continuing an eight-year decline. As U.S. dry natural gas production has reached record highs, lower domestic prices have helped to displace natural gas imports. Net natural gas imports (imports minus exports) totaled 1,171 billion cubic feet (Bcf ) in 2014, the lowest level since 1987. Imports by pipeline from Canada account for nearly 98 percent of all U.S. natural gas imports, and were the main driver of the decrease in total imports. Net imports from Canada represented 7 percent of total U.S. natural gas consumption in 2014, down from 11 percent in 2009. U.S. natural gas exports also decreased in 2014, but at a slower rate than the decrease in imports, and were still 9 percent above the previous five-year average. Natural gas exports to Mexico, which account for nearly 50 percent of U.S. natural gas exports, increased 12 percent in 2014. Net imports of liquefied natural gas (LNG) in 2014 totaled 43 Bcf, down 54 percent from the level in 2013 and continuing a five-year decline. LNG exports increased from 2013 levels, but not enough to offset a nearly 40 percent decrease in total LNG imports in 2014.

Net imports of natural gas have varied significantly around the country. New production from shale and other tight resources has helped to displace imports in certain regions. EIA’s most recent analysis of natural gas imports and exports highlights regional trends in natural gas trade: Inflows of natural gas from Canada were equivalent to 50 percent to 80 percent of New York’s natural gas consumption as late as 2008. In 2014, however, outflows of U.S.-produced natural gas through pipelines that crossed into Canada through New York state exceeded inflows of Canadian gas through pipelines into that state, as increased production from the Marcellus region outpaced regional demand.

Pipeline outflows of natural gas crossing into Canada through Michigan and Minnesota exceeded inflows of natural gas, but inflows increased and outflows decreased in 2014, likely because of increased demand during the winter months of 2014. Natural gas exports to Mexico through pipelines crossing the international border in Texas, California, and Arizona increased to a record 706 Bcf in 2014 to meet increasing demand from new natural gas-fueled power plants in Mexico. Higher production of natural gas from the U.S. Gulf Coast and the Eagle Ford Shale in southern Texas contributed to the increase in exports to Mexico.

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40 BASIN RESOURCES

We need grassroots activism and pressure

Free trade could help San Juan Basin producers Natural gas prices remain at historically-depressed levels. Since spiking during the winter of 2014 when the East Coast of the United States saw a series of cold snaps, the Henry Hub price of natural gas has been on a steady decline. Throughout much of 2015, prices have been below the $3/mmbtu line. Oil, as most in the industry are wellaware, had maintained consistently-elevated prices until July of 2014 when prices began a steep slide from $100/barrel to less than half that price by January of 2015. Unfortunately for the industry and contrary to the beliefs of many Americans (at least when prices are elevated), oil and gas producers have little control over the price point at which they sell their product. Collectively, the oil and gas industries can (and have) cut production, but this is a painful and unappetizing process. While production varies over time, the better solution for the oil and gas industries is free trade and the opening of new markets for these products. There are both political and physical obstacles to overcome, but this analysis is designed to provide these two industries (and those who rely on them) with a better understanding of what is happening and what can be done to bring added stability and economic health to the oil and gas industries in New Mexico. The big long-term opportunity for nat-

ural gas producers involves the potential for the Obama Administration to come to a trade agreement with eleven other countries with ties to the Pacific Rim: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. This trade agreement is known as the Trans-Pacific Partnership, or TPP. In order for TPP to happen, the Obama Administration has been working to restore Trade Promotion Authority, or TPA, which allows it to negotiate the agreement and bring it to an up or down vote in the Senate. Interestingly, given what the TPP could mean for New Mexico’s economy, especially natural gas producers, the State’s Congressional Democrats are united in opposition to giving the president – from their own party – TPA. Rep. Pearce was described as “noncommittal” in his attitude towards the treaty. While details of the TPP are still being negotiated, the impact on American natural gas producers could be significant. Japan, for example, which is party to the TPP, is a huge potential market for producers. Natural gas prices are triple or more those in the United States. “The TPP, therefore,” as the hostile Sierra Club notes, “would mean automatic approval of LNG export permits – without any review or analysis – to TPP countries. And many TPP countries would likely be quite interested in

importing LNG from the United States – already the DOE is considering applications to export approximately 45 percent of the total U.S. domestic gas production. To conclude the discussion about TPA and the TPP: There are some philosophical arguments to be made against regional trade agreements by staunch free market advocates, but when it comes to the long-term future of New Mexico’s natural gas producers, there are few better opportunities on the horizon than the Japanese market. TPP is the best nearterm entrée into that market. Let’s turn our attention now to oil producers. While the search for freer markets in natural gas involves complicated trade deals and significant infrastructure investment, American oil could access new markets with nothing more than a stroke of President Obama’s pen. Unfortunately, given the president’s attitude toward the oil and gas industries, that pen stroke will likely not occur until January of 2017 at the earliest. Simply put, as American oil production has skyrocketed in recent years, the

paul gessing rio

president grande Foundation www.basinresourcesusa.com •SUMMER 2015

prohibition on United States’ exports of crude oil adopted in 1975 has become an anachronism. While the United States oil market is complex, the new, “tight” oil being produced is lighter, sweeter – and sweeter than what has previously been refined in American refineries. Those refiners now can’t find enough refineries to process it. Exports would allow the appropriate oil to reach the international market where it could be processed and sold. According to the group Producers for American Crude Exports, or PACE, allowing oil exports would generate nearly 1,000 new industry jobs in New Mexico by 2018, adding an additional $46 million annually to the state’s economy. Of course, while New Mexico is a significant oil producer, the United States as a whole could see many times that amount in terms of economic benefits. The arguments against exporting crude simply do not hold up under scrutiny. Even radical environmentalists should desire that scarce oil resources be put to their most efficient use. And, because of the disconnect between the grades of oil that are refined in the United States relative to what is now being produced, the impact on American motorists in terms of higher prices would be minimal or non-existent. Free trade is a good thing for America as a whole as well as for the oil and gas industry in New Mexico and beyond. Unfortunately, while national organizations such as PACE have been actively lobbying Congress, we haven’t seen the grassroots activism and pressure on these issues here in New Mexico. It is hoped that this article will help do that. Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility

SIERRA CHEMICALS

SUMMER 2015 • www.basinresourcesusa.com

42 BASIN RESOURCES

750-megawatt electric power plant Billion-dollar natural gas, solar plant on track for completion in 2019 Debra Mayeux Basin Resources a company with the production of 8,000 megawatts of electric power under its belt is on track to develop, in 2 ½ years, a 750-megawatt electric power plant near Waterflow. Western energy Partners is working with “premier” financial, engineering and construction companies to build this project just west of the existing San Juan Generating Station, according to Curt Hildebrand, the company’s president. “We have a land option in place to purchase the project site,” Hildebrand said. “This is the perfect site for our next project.” Western energy Partners is developing natural gas-fired and solar-power projects in target markets. Its mission is “to successfully implement environmentally responsible, customer-oriented energy solutions to meet the changing needs of electricity providers and customers in the

Courtesy photos

western u.S.,” according to Hildebrand. This plant, named Clean Path energy Center, will consist of a 680-megawatt natural gas combined-cycle plant and a 70-megawatt solar photovoltaic power plant. “In terms of production, this will be the most efficient natural gas plant in

the western united States,” Hildebrand said. “It will be incredibly flexible in operating capabilities in terms of ramping.” The plant will be able to produce 100 megawatts of power per minute, which is “tremendously useful for operators of the transmission system,” he added.

www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 43 Hildebrand, with more than 28 years experience and leadership in the independent power and renewable energy industries, is no stranger to the electric industry. His background is in all aspects of project development and he was responsible for the successful permitting, development and construction of more than 4,500 megawatts of profitable new generation projects in California and throughout the Western United States. Hildebrand has been working with San Juan County to develop this billion-dollar project, and County CEO Kim Carpenter said it would be a boon to the community, not only in terms of jobs, but also in terms of providing power to the region. The community recently lost electric generation production with the retirement of coal-fired units at Arizona Public Service’s Four Corners Power Plant and at Public Service Company of News Mexico’s San Juan Generating Station. “This plant would serve not as a substitute, but as a filler of power,” Carpenter said. “It would complement what our needs are for power.” Ray Hagerman, of Four Corners Economic Development, explained further that even if two units at San Juan Generating Station are preserved, “We’re going to lose 50 percent of power on the grid, and that power has got to be made up somewhere.” The Clean Path Energy Center will make up the majority of that loss, according to Hagerman. The placement of those two power plants – Four Corners and San Juan Generating – is what made this area an attractive prospect for Western Energy Partners, according to Hildebrand, who said the area is “world class in terms of gas production and electrical transmission capacity.” Infrastructure, such as power lines, is already in place and the natural gas is here to power the plant. “The (natural gas) reserves in San Juan County are essential for the project,” Hildebrand said. This is extremely important, said Hagerman, because the plant “provides a market for the natural gas that comes out of the basin, allowing producers to write long-term contracts.”

SUMMER 2015 • www.basinresourcesusa.com

Hagerman also pointed out that a billion-dollar plant will provide a tax base for San Juan County, and make up some of the property taxes lost when Navajo Mine was sold to the Navajo Nation, which no longer has to pay property taxes on the facility. Hildebrand said the land site for the Clean Path Energy Center should be secured in the near future with the last step before production being the completion of the federal permitting process. An Environmental Impact Statement must be completed, but Hildebrand said that is under way. “We’re expecting permits by the end of next year – 2016 – with construction starting in 2017,” he said. SNC-Lavalin Inc. is set to be the engineering, construction and procurement contractor for the combined-cycle power block. It also will provide support through project development, as will Stonepeak Partners. Carpenter said there could be upwards of 800 jobs to fill during peak construction of the plant, and when it is completed by 2019, there will be 30 full-time positions available to people running the plant.

44 BASIN RESOURCES

.E. . N . . .E. . R. . G . . . Y. . . . N . . . E. . W . .

Across the Nation

. S.

Clean Power Plan

US coal production falling after the proposed rule takes effect Energy Information Association’s analysis of the Environmental Protection Agency’s proposed Clean Power Plan rule shows U.S. coal production falling after the proposed rule takes effect. In 2024 in the Base Policy case, coal production falls to a level last seen in the late 1970s. Total production recovers gradually thereafter, as coal-fired generation increases in the later years of the projection, but it never surpasses levels reached in the 1980s. Production levels at all major coal basins are affected, but production in the west falls the most. • Western coal production, which primarily includes the Wyoming Powder River basin, is 214 million tons (34 percent) lower by 2024 in the Base Policy case compared to the Annual Energy Outlook 2015 Reference case. Western coal production in the Base Policy case closes the gap with the Reference case to only 110 million tons (19 percent lower) but does not return to its 2013 production level by 2040. • The Interior region, which primarily includes coal from the Illinois and Gulflignite basins, is 103 million tons (45 percent) lower by 2024 in the Base Policy case compared to the Reference case. After 2024, the region resumes a trend of increasing production, reaching 211 million tons in 2040 but still 88 million tons lower than projected levels without the proposed rule. • Appalachian coal production in the

Base Policy case is 46 million tons (19 percent) lower by 2024 compared to the Reference case, with total Appalachian production hovering around 200 million tons thereafter. In the Reference case, the power sector is projected to be less reliant on Appalachian coal, and the proposed rule accelerates this trend. The power sector consumed about 150 million tons Appalachian coal in 2013 (excluding stocks). That consumption falls to 106 million tons in 2040 in the Reference case and to 70 million tons in the Base Policy case. Nonpower sector use and exports account for the balance of Appalachian coal production. Although the proposed Clean Power Plan rule results in less coal-fired electricity generation, several factors contribute

to projected increases in coal generation from 2024 through 2040. Demand for electricity increases, and a combination of rising natural gas prices and increased renewable capacity translates to increased utilization at existing coal plants, even after significant amounts of coal capacity are retired. Also, in the Base Policy case, the standards set by the Clean Power Plan are assumed to remain constant after 2030. (The Policy Extension case examines a scenario in which the proposed rule is tightened after 2030.) In terms of demand, the southeastern United States (South Census region) accounts for 75 percent, or 117 million tons, of the coal demand decline in 2040 compared to the AEO2015 Reference case.

www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 45

Light sweet grades rising EIA projects 56 percent of crude oil production growth between 2014 and U.S. oil production has grown rapidly in recent years. Energy Information Administration (EIA) data, which reflect combined production of crude oil and lease condensate, showed a rise from 5.6 million barrels per day (b/d) in 2011 to 7.5 million b/d in 2013, and a record 1.2 million b/d increase to 8.7 million b/d in 2014. Increasing production of light crude oil in low-permeability or tight resource formations in regions like the Bakken, Permian Basin, and Eagle Ford (often referred to as light tight oil) account for nearly all the net growth in U.S. crude oil production. Roughly 90 percent of the nearly 3.0 million b/d growth in production between 2011 and 2014 consisted of sweet grades with an American Petroleum Institute (API) gravity of 40 or above. Last week, EIA published U.S. Crude Oil Production to 2025: Updated Projection of Crude Types, which updates and extends a May 2014 EIA report. It provides a projection of domestic crude oil production by crude type through 2025, supplementing the overall production projection provided in the Annual Energy Outlook 2015 (AEO2015). Projections of production by crude type matter for several reasons. First, U.S. crude streams vary widely in quality. Second, the economics surrounding various options for the domestic use of additional domestic oil production are directly dependent on crude quality characteristics. Third, actual or potential export values also vary significantly with quality characteristics. Although the rate of growth in light sweet crude slows from its pace between 2011 and 2014, in the Reference case, 56

percent of EIA's projected production growth between 2014 and 2020 consists of sweet grades with an API gravity of 40 or above (Figure 1). Another 33 percent of the growth is attributable to an increase in Lower 48 offshore production, which is categorized as medium sour with an API gravity between 27 and 35. Total U.S. oil production is projected to increase 23 percent between 2014 and 2020. After 2020, tight oil production declines, as drilling moves into less-productive areas. The pace and duration of projected crude oil production increases are uncertain, and depend on crude oil prices and the quality and amount of technically recoverable resources. In the AEO2015 High Oil and Gas Resource and High Oil Price cases, the rate of growth in tight oil production is higher than in the Reference case. In 2025, projected domestic crude oil production is 2.7 million b/d higher in

SUMMER 2015 • www.basinresourcesusa.com

the High Oil Price case than in the Reference case and 3.9 million b/d higher in the High Oil and Gas Resource case than in the Reference case. U.S. total crude oil production is lowest in the Low Oil Price case. In 2025, projected domestic crude oil production is nearly 800,000 b/d lower in the Low Oil Price case than in the Reference case. In the past several years, more than half of the additional production of U.S. crude oil has been absorbed by reducing oil imports of similar grades. Of the total 1.8 million b/d decline in crude oil imports between 2011 and 2014, roughly 56 percent was light crude (API 35+). Light crude imports fell from 1.7 million b/d in 2011 to 0.7 million b/d in 2014, and medium crude imports decreased from 3.3 million b/d to 2.5 million b/d. Imports of heavy crudes have remained near 4.0 million b/d since 2010.

46 BASIN RESOURCES Other responses to the increased production of light oil over the past several years have included additional crude exports to Canada and increased refinery runs based on the recent cost advantage of U.S. refiners compared with global competitors. For example: U.S. exports of crude oil to Canada increased from 46,000 b/d in 2011 to 324,000 b/d in 2014, and reached 491,000 b/d in January 2015. U.S. refinery utilization increased from 86.2 percent in 2011 to 90.4 percent in 2014 and was 88.4 percent in January 2015. From 2011 to 2014, refinery runs in-

creased by 0.9 million b/d. The dwindling amount of light crude imports available to be backed out through further like-for-like substitution, and the limits to increased utilization of existing refinery capacity, could cause absorption of additional increases in domestic production to rely heavily on some combination of the following: • Continued shifts in the refinery input mix, which can be enabled by investments to relieve constraints associated with running lighter crudes at refineries that were optimized to run heavier ones; • Added splitter or hydroskimmer capacity to convert light crude into a mix of heavier fractions to feed domestic refineries and increase the production of light products available to other markets; • Continued increases in crude oil exports, which will depend in part on the extent of any relaxation of current export restrictions. All of these options have implications for the value of existing

www.basinresourcesusa.com •SUMMER 2015

BASIN RESOURCES 47 refineries and specific refinery units, the mix of products produced by the refining sector, and the market value of each type of crude input and refinery product output. A change in crude production levels, which could be a further market adjustment mechanism, would come into play in the event that the market value of a particular stream reaches a level where production is not economical. Updated estimates of regional production by crude type will be valuable as new plays start commercial development, potentially changing the distribution of production by crude types in the regions where those plays are located. U.S. average retail gasoline price increases, average diesel fuel price decreases, regional prices mixed The U.S. average retail price of regular gasoline increased one cent in June to $2.78 per gallon as of June 1, 2015, 91 cents lower

less than a year ago. The Rocky Mountain price rose one cent to $2.84 per gallon, while the Midwest price rose less than a cent to remain at $2.80 per gallon. East Coast and West Coast prices each decreased one cent to $3 per gallon and $3.16 per gallon, respectively. The Gulf Coast price was down less than a penny to remain at $2.80 per gallon.

than at the same time last year. The West Coast price decreased four cents to $3.44 per gallon, and the Gulf Coast price was down less than a penny to $2.48 per gallon. The Midwest price rose four cents to $2.69 per gallon. The East Coast and Rocky Mountain prices both increased one cent, to $2.67 per gallon and $2.74 per gallon, respectively. The U.S. average diesel fuel price decreased one-half cent from the prior week to remain at $2.91 per gallon, $1.01 per gallon

SUMMER 2015 • www.basinresourcesusa.com

Propane inventories gain U.S. propane stocks increased by 3.8 million barrels June 15 to 77.0 million barrels as of May 29, 2015, 31.3 million barrels (68.3 percent) higher than a year ago. Gulf Coast inventories increased by 2.3 million barrels and Midwest inventories increased by 1.1 million barrels. East Coast inventories increased by 0.4 million barrels while Rocky Mountain/West Coast inventories remained unchanged. Propylene non-fuel-use inventories represented 6.8 percent of total propane inventories.

Crude by rail West Coast ups imports as regional production falls While total U.S. crude oil production increased by nearly 3.2 million barrels per day (b/d) from 2010 to 2014, production in the West Coast region (PADD 5) decreased by 0.1 million b/d, continuing a long-term decline. With no major crude oil pipelines connecting the West Coast to other parts of the country, refineries on the West Coast adjusted to the declining in-region production by increasing imports of foreign crude oil, reaching an average of 1.1 million b/d over the past five years. Shipments of domestic crude by rail (CBR) to the West Coast have also increased, from an average of 23,000 b/d in 2012 to 157,000 b/d in 2014. In the first quarter of 2015, West Coast CBR movements averaged 191,000 b/d. Bakken crude oil production from the Midwest (PADD 2) is the major source of rail shipments to the West Coast (PADD 5), accounting for nearly 90 percent of West Coast crude-by-rail receipts in 2014. Relatively small shipments from other domestic regions have also increased. Shipments from the Gulf Coast (PADD 3) tripled from 2013 to 2014, and Rocky Mountain (PADD 4) shipments quintupled. These increases in crude-by-rail movements occurred only after West Coast crude-by-rail unloading infrastructure was significantly expanded. Crude by rail is moved to unloading facilities at refineries in Washington and terminals in California, Washington, and Oregon. Coast-wise compliant vessels and pipelines then transport the oil to refineries without crude-by-rail unloading facilities. In California, regulatory and permitting problems have delayed construction of some crude oil unloading facilities and forced the closure of operations at others. Despite permitting delays, refineries in California receive some domestic crude oil by rail from other PADDs. California Energy Commission (CEC) data indicate that California receives crude by rail from Rocky Mountain states, specifically Utah and Wyoming.

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50 BasiN resoUrces

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