New Mexico Struggles To Balance Oil Output Boom with Climate Goals

New Mexico, has seen record oil and gas output and revenues in recent years on the back of the booming activity in the Permian.
New Mexico, however, needs to prepare for a decline in the state’s oil and gas production and state revenues.
Additionally, the state needs to do a lot more to cut greenhouse gas emissions if it is going to meet its ambitious emission reduction and climate goals.

The second-largest oil-producing U.S. state, New Mexico, has seen record oil and gas output and revenues in recent years on the back of the booming activity in the Permian, the top U.S. shale field.

New Mexico has driven the Permian’s oil production growth over the past two years. For example, two counties in the southeastern corner of the state, Lea and Eddy, accounted for 29% of all crude oil production in the Permian Basin in the first half of 2023, the EIA said last year, citing data from Enverus.

As New Mexico’s oil and gas production surges, so is the revenue from the industry for the state coffers.

New Mexico, however, needs to prepare for a decline in the state’s oil and gas production—and state revenues—expected to begin in the early 2030s, legislators and analysts say.

Additionally, the state needs to do a lot more to cut greenhouse gas emissions if it is going to meet its ambitious emission reduction and climate goals.

A 2023 analysis from the Environmental Defense Fund (EDF) showed that New Mexico is nowhere near reaching its 2025 and 2030 emission reduction goals. The state has committed to reducing GHG emissions by at least 45% by 2030, from 2005 levels, and has subsequently pledged to make at least a 26% reduction by 2025 and a 50% reduction by 2030.

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But as of September 2023, New Mexico was projected to reduce emissions by just 1% by 2025 and 13% by 2030 from 2005 levels, the EDF analysis found.

This suggests that the state is on track to reduce emissions by less than one-third of what is necessary to meet 2030 commitments made by Democratic Governor Michelle Lujan Grisham.

New Mexico will miss by a mile its emission reduction targets “unless the state leaders act quickly to adopt comprehensive policies that set an enforceable limit on climate pollution and allow New Mexico to take full advantage of federal climate and clean energy funding,” EDF said.

“Current policies are not reducing overall emissions in a persistent manner, leaving the state projected to emit 21% more climate pollution over the course of the decade than if it were steadily reducing emissions in line with the latest science.”

But the oil and gas sector, responsible for a lot of these emissions, is creating a bonanza for New Mexico’s state revenues.

In 2023, the industry provided $13.9 billion in state and local revenues for New Mexico, with $7.5 billion going to the general fund and another $6.4 billion to the non-general fund, the New Mexico Oil and Gas Association (NMOGA) says.

New Mexico’s Legislative Finance Committee (LFC) reported last week a revenue of $15.2 billion from the extractive industry for the fiscal year 2023, as oil and gas revenue to the state has more than quadrupled over the past five years.

New Mexico expects the coming years to continue bringing high revenues from oil and gas. The state has taken steps to ensure it has enough reserves in the General Fund in case of another oil industry bust, but needs to rely less on the sector for property tax income that goes to local governments, lawmakers and economists said last week.

“We have enough money in reserves, which is a great place to be, because oil and gas will always be a volatile industry,” legislative economist Jennifer Faubion said, as carried by the Albuquerque Journal.

The record revenues from oil could start to decline by 2030, New Mexico said at the end of last year. The General Fund Consensus Revenue Estimate drawn by economists “highlights oil and gas strength as driving current revenues while later becoming a drag on revenue growth as global demand wanes.”

Highlighting New Mexico’s dilemma is also last week’s decision by a district court to allow a lawsuit to proceed against the state’s governor, legislature, and agencies for failing to uphold their state constitutional duty to protect against pollution from oil and gas drilling.

By Tsvetana Paraskova for Oilprice.com