- The Energy Mix - https://www.theenergymix.com -

Appalachia’s Coal Fate Could Hold Lessons for New Mexico

Analysts are warning that New Mexico’s dependence on oil and gas could lead to the same legacy of poverty and pollution as Appalachia inherited after the decline of coal. That has some observers pointing to the option of a better ending—by using the state’s confirmed potential as a solar and wind powerhouse.

The pandemic brought misery to New Mexico’s oil economy, and, by extension, to vast numbers of the state’s people, reports Capital & Main. In better times, fossil dollars furnished “a significant chunk” of annual state revenues—at least 15 to 25%, spiking to 34% in 2020. So when the pandemic tanked demand, thousands of workers felt the blow of unemployment, and scores of drilling and oilfield service companies went bankrupt.

When the same happened to the coal industry in Appalachia, few remained to help fix the environmental mess the industry left behind. “Who will foot the bill for the cleanup of the mines—the tons of refuse and millions of gallons of toxic water—remains unclear,” C&M writes. Now, the same fate is befalling New Mexico as oil and gas companies declare serial bankruptcies, thereby dodging the cost of well cleanup and site remediation, while their executives pocket bonuses on the way out the door.

“When it comes to corporate inability and unwillingness to meet their cleanup costs, there are worrying similarities between the two extraction industries,” said Clark Williams-Derry, an energy finance analyst with the Institute for Energy Economics and Financial Analysis.

The post-coal era in Appalachia has even been named: now, it is referred to as “Coal’s Bankruptcy Decade,” C&M writes. “Even as the executives walked away flush, coal companies would use bankruptcy proceedings to spin off their environmental obligations and pension commitments. These risky mines and the attached obligations were then acquired, and then defaulted on again, by smaller and smaller companies, each one looking to make a short-term profit.” 

The strategy helped the four biggest U.S. coal companies dodge “billions of dollars in environmental and labour obligations, leaving taxpayers responsible for reclamation and cleanup of the mines.”

Today, oilpatch companies are using the same strategies. C&M cites one particularly egregious case in which a fossil “took millions of dollars in CARES Act stimulus money, declared bankruptcy, and gave the exact same dollar sum to its executives.” 

Other companies are selling off unprofitable operations to smaller companies that don’t have the capacity to remediate the wells once finished. “If the systems aren’t fixed and the enforcement isn’t there, we are travelling down a pretty phenomenal path of destruction,” said Nathalie Eddy of the environmental watchdog Earthworks. 

New Mexico currently has more than 57,000 active wells and roughly 650 “orphaned” wells that need to be plugged and have their sites remediated. And the state is trying to hold the drilling companies to stricter account through increased bond requirements, says C&M. Unfortunately, the US$2.2 million in available industry bonding barely approaches the $25 million experts say will be needed to clean up the state’s orphaned wells—or the $10 billion required to reclaim all the wells currently active in the state.

“States like New Mexico have to be very careful,” Williams-Derry told C&M. “The party is over, and once the party is over, who pays for the cleanup?” 

The report notes that, in mid-December, the Energy Transition Act Advisory Committee and the New Mexico Departments of Economic Development, Indian Affairs, and Workforce Solutions held a virtual town hall to solicit interest from those who could help diversify the economy of oil-dependent San Juan County, located in the extreme northwest corner of the state. Capital & Main notes that San Juan also happens to be the epicentre of recent efforts by oil majors to consolidate losses by spinning off weak assets—and their accompanying remediation costs.

One path forward in unravelling the mess could be the state’s potential for solar and wind development. According to recent analysis by the Brookings Institution, New Mexico is “home to five of the 10 cheapest counties for solar electricity generation” in the U.S.