The Outlook: Experts Draft 2009 Energy Road Map
By Rick Martin, Contributing Editor
With cratering oil prices, a major economic stimulus bill in the pipeline that includes billions of dollars in federal funds for renewable energy projects and conservation initiatives, and the state legislature wrangling over a controversial set of new regulations for oil and gas production in Colorado, 2009 promises to be a watershed year for the energy industry in the state. To get some clarity on what can be expected to happen in the coming year, in both oil and gas and renewables, Colorado Energy News conducted a quick, unscientific survey of policymakers and experts. Their predictions follow:
1. Oil and Gas Production Will Fall
That’s not a surprise, given the rapid tumble in world oil prices (crude futures fell another 5% on Jan. 19, to $34.60 a barrel). The scale of the decline could be even more massive than expected, though, given the fall in demand and the uncertainty over new O&G drilling regulations.
John Harpole, founder and president of Littleton-based Mercator Energy LLC, a natural gas services, brokerage and research company (and a leading opponent of the new state regulations), sees a 40% decline in the number of active drilling rigs on the Western Slope already in the last several months - a figure that he predicts will be matched in 2009.
“I think we are just a few months away from one or two companies announcing that they’re pulling out of Colorado altogether,” adds Harpole, who points out that the Piecance Basin, in western Colorado, is among the least profitable natural gas fields in the country.
“You’ve got some of the lowest-margin new production in the country,” says Harpole,.”and you throw the uncertainty of the new regulations into the mix, it’s given people a reason to step back.”
Proponents of the new regulations, naturally, dispute that view. A fierce debate rages in the legislature this month over whether the rules or the overall economic conditions are causing the decline. And it’s important to remember that, historically speaking, the decline comes after a record boom: “We issued 8000 [drilling] permits last year,” remarks David Neslin, acting director of the Colorado Oil and Gas Conservation Commission. “That means the industry could drill 3000 to 3500 wells this year.”
2. Investment in Local Renewable and Conservation Projects Will Grow
On Jan. 15 the U.S. House released the draft outline of the $825 billion economic stimulus package, which includes $76 billion for energy projects over the next two years. Those projects could include new public transit lines, renewable R&D, and rebates and credits for homeowners and businesses going green. A large chunk will certainly go to community-based initiatives, like retrofitting older building for more efficient energy use. And much of that money will be matched with Energy Conservation Block Grants - representing “a substantial injection into industries associated with renewable energy and energy conservation, particularly at the community level,” says Tom Plant, head of Governor Ritter’s renewable energy office.
The emphasis on local projects (as opposed to massive regional transit facilities or solar-production plants, for instance) and on conservation and efficiency springs from two convictions: a) that conservation and efficiency can be achieved quickly, this year, using existing technologies and relatively cheap investments; and b) that local projects will have the biggest and most rapid effect in terms of job creation.
The result could help jumpstart, or at least tide over, the moribund construction and remodeling industries, says Plant: “We’ll see some incredible economic activity in the expansion of energy-efficiency-related business,” including the weatherizing of structures and the installation of more efficient heating and cooling systems.
3. State Renewable Programs Will Be Cut Back
Plant’s office is facing some bleak figures: the budget for the Governor’s Energy Office, which receives funding from state gaming revenues, was slashed from a predicted $8 million in 2008 to just under $4 million for that year. Initially projected at around $5 million for this year, funding for the agency is forecast at zero. Zilch. Nada.
The result has been a painful process of readjusting priorities just to keep the overall program from withering.
“We’ve been trying to pull back some of our programs to provide continuity,” says Plant. “Then the stimulus came along.”
It’s not clear at this point how much money the state of Colorado will receive for renewable under the federal stimulus plan - Plant cites early estimates of $3.9 billion total, for all 50 states, to be distributed according to a formula to be devised later. Even a relative drop in the overall stimulus bucket could be a huge gusher for the state’s Energy Office, though.
4. Despite a Shakeout, the Renewables Industry Will Continue to Grow
While the solar and wind energy investment boom of the past few years has ground to an abrupt halt, it still remains a near-certainty that, as a percentage of the overall energy production mix, renewable will continue their climb in 2009. There’s been no talk, so far, of adjusting the Governor’s overall goal of supplying 20% of Colorado’s electricity from renewable sources by 2020. And the boom of the recent past will continue to ripple through the industry even in a sharp recession, predicts Jim Welch, the CEO of Bella Energy and the president of the Colorado Solar Energy Industries Association.
“The good news is that Colorado’s solar industry has grown 1,300% in 3 years,” Welch observes.
Equally important is the political momentum behind replacing fossil-fuel sources with wind, solar, and other renewable forms - momentum which will certainly surge under the Obama Administration. “No politician will introduce any kind of bill to slow down renewable energy,” says Harpole. “I don’t see that steam engine slowing down at all.”
That means that projects launched in the boom years are likely to continue, even if at a slower pace. Xcel Energy, Colorado’s largest utility, has put out RFPs for up to 600 MW of solar production, for instance.
“There are hundreds of megawatts of concentrated solar being proposed around the country,” notes Plant. “That’s a transformational change in the industry.”
5. The Wrangling Will Continue
It’s a truism of politics that the smaller the pie, the louder the shouting over slicing it up. The new oil-and-gas production regulations, proposed and devised during an unprecedented energy boom in Colorado, will be even more controversial in a devastating recession and a continuing slide in crude prices.
Currently being debated in the statehouse, the new rules, if approved, will go into effect on April 1 on private and state lands, May 1 on federal lands. Given Democratic control in the legislature, they are likely to make it through. But that won’t stifle the argument.
If the industry had its way, says Harpole, the state “should immediately kill all the regulatory changes. But that’s not going to happen.”
One potential bright spot are the “comprehensive drilling plans,” which offer blanket regulatory approval for geographic areas, rather than individual wells, in exchange for more detailed plans for protecting wildlife habitat and public health. The plans, contends Neslin, are “a win-win tool for both sides.”
At a time when the new president is preaching bipartisan consensus to tackle a host of national problems, that sounds like a good way forward for Colorado’s energy industry in 2009.
The key point is their is a 90 yeear supply supply gas in the lower 48 ALONE.
This doesn't take ...
Cogeo - thanks for the comprehensive comment. You're prolific, indeed; however, overall, we just don't see the doomsday scenario for ...
Projections of reserves and years of consumption are historically wrong. Reserve estimations are more important in pumping up stock ...
Thanks Ann. I've heard that 100 year claim too, but at current consumption rates. I guess I could ...
Comment by John C on 9 February 2009:
Neslin’s “Win-Win” perspective of the proposed regulations has me thinking he may have had a steered off course, quite a bit! I am every bit for protecting our water, wildlife and natural beauty of our state and or any state for that matter. However, there are many ways to skin a cat, and the current COGCC proposed way is not one. 1) the purpose/objectives of the regulations can be accomplished in other ways. For example, all taxes that are derived from the energy sector in the state can have a large % allocated to accomplish testing, remediation, research, use of better technology all to better the environment not only in the drilling areas or effected by energy areas but the entire sate. This would allow us to continue to derive necessary tax revenue dollars that fill state and local municipality coffers and maintain a decent job level that also allows for a broader tax base, as well as continues to help drive the economy when we have a more stable region. All the while using the dollars diverted from the sate from a special purpose fund again from tax dollars, to meet the environmental sensitivities that the agenda and current regulations are trying to meet.
Comment by Kurt A. on 13 February 2009:
COGCC and the current administration need to understand that the oil and gas industry is one of the biggest employers in the state and could have been much bigger had the administration learned to appreciate rather than diminish the role we have played in building not only energy reserves but also doing our share in various communities which traditionally had sporadic and poor economies otherwise. We also contributed to and promulgated activities which clearly demonstrate our land and wildlife stewardship not only through our taxes, but also as a result of what we as an industry know is “right”. However, I would now urge every operator, employee, and contractor to reexamine our philanthropic ways as we have gained nothing postive from the millions invested locally. For example; one operator funded research into the Gunnison Sage Grouse. The group receiving this benefit is one of the groups standing in the way of hydrocarbon exploration and exploitation. In effect, the operator funded its own roadblocks to productivity. To financially support the groups that oppose our industry as well as the common good of all Americans is a paradox that has yet to be adequately explained to me. Better to contribute that money to a fund which will hire lawyers for the industry to battle these groups. We must demand nothing less than what the law requires we receive, we must adhere to and demand clearly defined and measureable rules and regulations. In short, this industry must either be dealt with fairly within the state of Colorado or we must vote with our feet.