COMMENTARY: It’s now more than two years ago that Saudi Arabia declared a price war with American shale oil in order to protect its market share of crude-oil production. What’s New Mexico to do when a whole nation goes after a U.S. industry that, on full-tilt, can contribute one-third of your state’s budget revenue? A lot is on the line to come to its aid, and the New Mexico Association of Commerce and Industry feels that responsibility as much as anyone.
In 2015, ACI and others pleaded with Congress to lift the 40-year-old ban on exporting U.S. crude oil. Congress included a provision to repeal the export ban in a spending bill last December. Despite low prices, the move, we believed, would allow record U.S. production to reach new customers worldwide and would bring back the United States to a position to negotiate with OPEC on price.
As of August this year, the Energy Information Administration said the number of countries importing U.S. crude oil has sharply risen in 2016 and averaged 501,000 barrels per day.
While that’s great news, lifting the U.S. export ban was just delayed enough to have its effects hampered by the multinational accord to lift Iran’s export sanctions for nuclear compliance. Since then, Iran has been trying to make up for lost time, dumping its crude oil into the marketplace, which has compelled Saudi Arabia to respond in like fashion to its assault on American oil in 2014. Geopolitical maneuvers as these have kept the price of West Texas Intermediate to an average of about $41 through 2016 thus far, and the signs aren’t suggesting a dramatic shift in the latter half of the year.
All that said, when whole nations are slugging it out for global command of a commodity, it’s tough to see where New Mexico can help its besieged oil and gas industry. Little can be done from the Land of Enchantment to influence the price of oil, but ACI has resolved to do all it can to affect the cost side of the equation.
For example, in 2016, for all employers, not just those in oil and gas, ACI wrote and advocated for passage of legislation to reduce the year-to-year uncertainty of unemployment-insurance premiums.
More recently, and more specifically impacting the oil and gas industry, ACI opposed the Bureau of Land Management’s proposal to impose wider regulatory restrictions on venting and flaring, the practice of burning methane through vertical stacks to prevent a dangerous buildup of the gas at a well site. We believe the rule would be far too costly to producers and would create only marginal benefit. With jobs and even New Mexico’s state budget depending on some semblance of activity, now is not the time to further strap the industry with more burdensome regulations until the direct and indirect economic impacts are better understood.
Fact is, New Mexico shares with Texas so much of the Permian Basin, which has been dubbed America’s Saudia Arabia for its immense oil reserves. As technologies advance to economically locate and extract Permian Basin crude, so too must New Mexico’s business policies. With the Permian Basin straddling the Texas-New Mexico border, New Mexico must be as business-friendly to oil and gas as Texas, or else more companies – and ultimately, more jobs and workers – will locate on the Texas side of the basin.
New Mexico’s oil and gas industry is worth fighting for, and it’s worth celebrating. In fact, residents of southeastern New Mexico will converge on the Roswell Convention and Civic Center on the eve of the BLM’s Sept. 1 lease sale to celebrate the individual opportunities and collective economic benefits of oil and gas. The pertinent leases are for the region’s Delaware Basin, and moving the lease sale from Santa Fe to Roswell takes the process to the region where such leases promise new jobs and new revenues for the surrounding communities and the state.
Even if New Mexico can neither sway Middle East geopolitics nor commodity pricing of crude oil, New Mexicans can stand with and for New Mexico’s oil and gas industry. ACI does, and I’ll be in Roswell on Aug. 31.
Jason Espinoza is the president and CEO of the New Mexico Association of Commerce and Industry.