Category Archives: Clean-up costs

Clean energy transition, Clean-up costs, Cleanup funding, Decommissioning, Fossil fuels, Keeping Watch on Earth News

Is this Benicia’s future? New Mexico stuck with $8 billion in fossil fuel cleanup

New Mexico Stuck With $8 billion in Cleanup for Oil Wells, Highlighting Dangers From Fossil Fuel Dependence

The oil industry boasts that it fills state coffers with revenues from drilling, but a new study finds a serious gap in funding available to tackle the environmental legacy of abandoned wells.

DeSmog.com, by Nick Cunningham, May 26, 2021
Oil stored in tanks. Credit: Bureau of Land Management (CC BY 2.0)

New Mexico is facing more than $8 billion in cleanup costs for oil and gas wells, an enormous liability that taxpayers could be left to pick up if drillers go out of business or walk away from their obligations.

Cleaning up old wells at the end of their operating lives can be expensive, and typically states require drillers to cover part of the cleanup cost at the outset, known as financial assurance requirements. The money is tapped later on when the well or pipeline must be dismantled and cleaned up.

But a study commissioned by the New Mexico State Land Office published on April 30 found that “financial assurance requirements do not exist for much of the oil and gas infrastructure explored in this study, and in some cases where such requirements are imposed, operators may have multiple ways of minimizing or avoiding those requirements.” The study was conducted by the Center for Applied Research, an independent analytical firm.

Inadequate bonding requirements means there is a serious gap in available funding to properly clean up after the fossil fuel industry. According to the report, it could cost as much as $8.38 billion to clean up the state’s tens of thousands of wells and associated pipeline infrastructure. Alarmingly, however, New Mexico only has $201 million tucked away for cleanup, leaving a hole of $8.1 billion.

“That’s $8.1 billion that we don’t have,” New Mexico Commissioner of Public Lands Stephanie Garcia Richard said in a statement. “Enormous sums of taxpayer money and money meant for public schools, along with the long-term health of our lands, are on the line.”

The industry likes to boast that oil and gas revenues contribute roughly a third of the state’s general fund — a fact that the New Mexico Oil & Gas Association (NMOGA) triumphantly advertised in a recent report and regularly highlights on social media.

Indeed, drilling accounts for a large source of state revenues. In April 2021, for example, the state took in $109 million in royalties, a record high. Those funds will be funneled into public services, including schools and hospitals.

As the report exposed, however, the massive liability put onto the public in cleanup costs somewhat undercuts the notion that the oil and gas industry is a financial godsend.

The industry has helped fill state coffers in recent years, with oil production booming to roughly 1 million barrels per day, more than double production levels from five years ago. According to the report, last year the oil and gas industry produced nearly 370 million barrels of oil and 2 trillion cubic feet of natural gas from roughly 60,000 wells, which was transported on 35,000 miles of pipelines.

But as the State Land Office study highlights, the industry is leaving behind enormous costs for the state and the general public to deal with at a later date, a liability that is mostly obscured from public discussion.

The average cost to plug an old well and reclaim the surface is over $182,000 per well, but the state only has the finances to cover a little over $3,200 per well. The funding gap is even more staggering for pipelines. Decommissioning and reclamation costs are roughly $211,000 per mile of pipeline, but available financial assurance only totals about $51 per mile.

A pump jack in Roswell, New Mexico. Credit: BLM. (CC BY 2.0)

The risk to the public from inadequate bonding requirements is compounded by the fact that oil and gas drillers can go out of business long before wells are cleaned up, which can be years or even decades later. The U.S. shale industry has burned through hundreds of billions of dollars in cash, and there have been more than 250 bankruptcies of North American oil and gas companies since 2015. And as the clean energy transition accelerates, the financial challenges to the industry are likely to only grow more severe.

The state has long suffered from the roller coaster cycles of extractive industry, according to James Jimenez, executive director of New Mexico Voices for Children, a health, education, and economic advocacy organization. “We’ve made policy choices in boom times that have really exacerbated our over-dependence on oil and natural gas revenues,” Jimenez told DeSmog.

“Because of the really volatile nature of the oil and gas industries, we haven’t had sustainability in the programs,” he said. A dependence on a boom-and-bust industry has forced the state to make cuts to school systems during downturns in the past.

“We need to reduce this over reliance we have on oil and natural gas to fund really basic important programs like our K-12 education and higher education systems,” Jimenez said. He added that the state should diversify its revenue base, such as through progressive taxation on the wealthy and supporting non-extractive business sectors.

Even as money flows to the state from drilling today, the unfunded liabilities of cleanup that are dumped onto the public also highlight the downside to such high levels of drilling. “The $8 billion that it would take to do the cleanup would have to come from somewhere,” Jimenez said. Dollars spent on cleaning up the waste from the oil and gas industry, are dollars not spent on other important needs, such as rural broadband or road infrastructure, he added.

“The answers are simple and urgent — raise royalty rates and taxes on the industry, stash away the revenues in our Permanent Fund to stabilize cash flows, and spend current budget dollars on investments to diversify our economy,” Thomas Singer, senior policy advisor at the Western Environmental Law Center, told DeSmog via email.

NMOGA did not respond to a request for comment.

Well pad near Roswell, NM. Credit: BLM. (CC BY 2.0)

On top of the financial risks from abandoned wells, the fossil fuel industry brings numerous environmental and public health hazards as well. Oil and gas operations have contributed to a deterioration in air quality in the state. And in northwestern New Mexico, there have been more than 300 accidents since 2019, including oil spills, fires, blowouts, and gas releases, and much of it has occurred on Navajo land, as reported by Capital & Main.

A recently published peer-reviewed study found that shut-in conventional oil wells in the Permian basin could be leaking a substantial amount of methane, a powerful greenhouse gas that exacerbates climate change.

“New Mexicans must recognize that while industrialization of our landscape to produce oil and gas brings revenue today, if not properly cleaned up, it also jeopardizes our economy of the future,” Singer said. Allowing drillers “to defer this obligation indefinitely puts the state and taxpayers at great risk that they will have pick up the tab or leave these areas as polluted sacrifice zones.”

Big Oil, California Governor Gavin Newsom, Clean-up, Clean-up costs, Keeping Watch on Earth News

As Oil Giant Goes Bankrupt, California Governor Urged to Hold Industry Responsible for Well Cleanups

SACRAMENTO, Calif.— As one of California’s largest oil producers enters bankruptcy, the Center for Biological Diversity and Sierra Club today urged Gov. Gavin Newsom to prevent California Resources Corporation and other troubled oil companies from shirking legal obligations to clean up their wells and prevent pollution. CRC filed for Chapter 11 bankruptcy on Wednesday.

Today’s letter calls on the governor to intervene in CRC’s bankruptcy proceedings to ensure the company sets aside enough money for well cleanup. CRC and its affiliates operate approximately 18,700 wells in California, which could cost more than $1 billion to properly plug, according to the Institute for Energy Economics and Financial Analysis. Of these, 7,826 are already “idle,” which means they’ve produced little to no oil in the past two years.

“Bankruptcy proceedings like these endanger California because oil companies like CRC can weaponize them to dump their environmental cleanup costs on the public,” said Kassie Siegel, an attorney at the Center for Biological Diversity. “Given the huge number of wells at stake, the Newsom administration should intervene quickly to protect the public from those costs and our environment from pollution. More big oil bankruptcies are coming, and Gov. Newsom has a responsibility to be ready.”

“CRC’s bankruptcy is likely just the first of many as the oil industry inevitably declines in California. Gov. Newsom has the tools to protect the public from Big Oil, but so far he hasn’t used them,” said Kathryn Phillips, director of the Sierra Club California. “It’s critical that Gov. Newsom ensure that failing oil companies are held accountable for cleaning up their own mess, rather than leaving taxpayers and workers to pay the price.”

Although oil companies are required to pay for the cost of properly plugging and abandoning wells, they have not set aside nearly the amount required for remediation. Statewide, the California Council on Science and Technology estimates that cleaning up California’s approximately 107,000 oil and gas wells would cost over $9.2 billion, yet the bonds that are supposed to cover these costs total only about $107 million.

Today’s letter also urges Gov. Newsom to take proactive steps to protect the public and the environment in anticipation of a likely wave of future oil and gas bankruptcies. These steps include:

  • Increasing and accelerating well plugging and abandonment requirements to reduce air and water pollution and create jobs.
  • Increasing bond requirements to ensure that oil and gas companies set aside enough financial resources to cover the full costs of remediation even if they become insolvent.
  • Ensuring that the oil and gas industry as a whole – not taxpayers –funds the remediation of truly “orphaned” wells, by increasing the administrative fee on well owners as needed.
  • Avoiding the accrual of additional well cleanup costs by halting approvals and permits for new oil and gas activity, including new wells and fracking permits.
  • Taking steps to ensure that oil and gas companies satisfy their obligations to workers by honoring their pension and healthcare commitments.

Despite the dire outlook for the company, Newsom has continued to issue CRC new permits to drill wells. State oil regulators have issued CRC and its affiliates permits to drill nearly 300 new wells so far this year, including 27 new permits in just the first week of July, all without conducting environmental review required by law. Newsom has approved this expansion of drilling operations despite CRC’s long record of violating safety and environmental regulations.

“As other companies flirt with insolvency, the governor should accelerate well remediation by solvent operators, increase bonding levels on existing wells, and stop digging the hole deeper by handing out new drilling permits,” said Siegel. “Forcing companies to clean up their own messes would create jobs, keep the public safe from unattended wells and make sure polluters are the ones paying for cleanup.”

Statewide, Newsom has issued 1,500 drilling permits for new wells so far this year. He also lifted a moratorium on fracking by authorizing 360 new fracking events over the past few months.

In 2014, CRC was created as a spin-off by Occidental Petroleum and took over Occidental’s California oil and gas wells. Since then, CRC has performed poorly, earning “junk bond” status from ratings agencies. CRC blamed the coronavirus pandemic and economic downturn for the bankruptcy, but CRC was at high risk of bankruptcy even before these events, as detailed in a report from the Institute for Energy Economics and Financial Analysis.

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Clean-up costs, Cleanup funding, Crude By Rail, Derailment, Oil spill, Rail accidents, Rail industry, Washington State

Washington state requires railroads to show they could afford ‘worst case’ oil train spill

Repost from the Bellingham Herald

Washington asks if railroads could afford $700M oil train spill

By Samantha Wohlfeil, February 13, 2016 6:28 AM
Smoke rises from railway cars carrying crude oil that derailed in downtown Lac-Megantic, Quebec, on July 6, 2013. A large swath of the town was destroyed and 47 people killed in what became the worst oil train derailment in North America.
Smoke rises from railway cars carrying crude oil that derailed in downtown Lac-Megantic, Quebec, on July 6, 2013. A large swath of the town was destroyed and 47 people killed in what became the worst oil train derailment in North America. Paul Chiasson Associated Press

HIGHLIGHTS
•  Three new rail safety rules scheduled to take effect March 11
• Railroads must show they have means to pay for a ‘reasonable worst case spill’
• Railroads disagree with new rule methods and question state authority

Railroads that haul oil trains through Washington state will need to report whether they could afford around $700 million to pay for a derailment and spill, under a recently finalized state rule.

As announced Feb. 9, the requirement is one of three oil train safety rules the state Utilities and Transportation Commission crafted as required under legislation that state lawmakers passed in 2015.

The new rules, which take effect March 11:

▪ Require signs with basic safety information be posted at private rail crossings along routes that carry full or empty oil trains.

▪ Allow certain cities such as Bellingham, Aberdeen, Spokane, Tacoma, and Richland to opt into a state rail crossing inspection program to get free assistance with inspections.

▪ Require railroads to include financial information in their annual report to the UTC to show if they could address a “reasonable worst case spill” of oil.

Reasonable worst case

The portion of the rule most heavily scrutinized during a months-long comment process was the requirement to show financial ability to pay for a reasonable worst case spill. The rule required commission staff to first define what a “reasonable” worst case spill looks like, and second, calculate what cleaning that up might cost.

THEY DIDN’T WANT THE WORST CASE. THEY WANTED SOMETHING REASONABLE.
Jason Lewis, Utilities and Transportation Commission transportation policy adviser

Railroads objected to the proposed spill scenarios, and argued that the requirement to show whether they could afford cleanup was pre-empted by federal law.

Johan Hellman, on behalf of BNSF, wrote Sept. 21, 2015, that the company was concerned with a draft that had defined the reasonable worst case spill as half the train’s contents, and had set minimum cleanup costs at $400 per gallon.

“We find both the definition and the minimum cost to be greatly exaggerated,” Hellman wrote.

The worst case calculation was refined to be based on the fastest speed an oil train travels, but both BNSF and Union Pacific Railroad continued to object to the requirement.

In a Dec. 7 letter to the commission, Melissa Hagan argued on behalf of Union Pacific that requiring the railroad to detail the insurance it carries, along with its ability to pay for the reasonable worst case cleanup, would “compromise the integrity of Union Pacific’s confidential business records” and was “blatantly discriminatory.”

Other people who commented said the rule didn’t go far enough in its estimates for how much oil could spill and how much those damages could cost.

State Sen. Christine Rolfes, D-Kitsap County, told the commission she thought the reasonable worst case spill amount was “far too conservative” and the estimated cleanup cost seemed “excessively low.”

Dale Jensen, spill prevention preparedness and response manager for the state Department of Ecology, also wrote to say an estimated $400 per gallon cleanup cost would cover only a “portion of the overall costs of an oil spill” and “in the event of a worst case spill, the true cost of damages incurred could certainly exceed the level established within the proposed rule.”

The commission agreed with Jensen but said the legislation refers to a “reasonable” worst case, not an absolute worst case spill.

Calculating the reasonable worst

In crafting the rule, commission staff looked to federal rule-making by the Pipeline and Hazardous Materials Safety Administration and Federal Railroad Administration, and to the actual worst derailment of ethanol or crude oil in North America, which happened in Lac-Megantic, Quebec.

“Quebec was a terrible tragedy that really put a lot of these types of regulations more in the public eye,” said Jason Lewis, who helped craft the rule as transportation policy adviser for the commission.

In Quebec, a parked, unmanned 72-car train loaded with Bakken crude oil rolled downhill, reaching 65 mph before crashing into the downtown and killing 47 people in July 2013. Sixty-three cars derailed and about 1.6 million gallons of oil leaked.

THE WORST OIL TRAIN DERAILMENT IN NORTH AMERICA OCCURRED IN LAC-MEGANTIC, QUEBEC, WHERE 63 CARS OF A 72-CAR BAKKEN CRUDE OIL TRAIN DERAILED AT 65 MPH, KILLING 47 PEOPLE.

Although Quebec is the worst oil train derailment to date, Washington state legislators specifically asked the commission to find a “reasonable” worst case scenario for the financial reporting requirement, Lewis said.

“They didn’t want the worst case. They wanted something reasonable,” Lewis said. “It’s an ambiguous term that we really had to work to define.”

The commission looked to other state rules and used PHMSA and FRA logic to scale down from the incident in Quebec, Lewis said.

The final rule says to take the maximum oil train speed (usually 45 to 50 mph), divide it by 65 (the speed in Quebec), and account for kinetic force to get the estimated percentage of the train’s cargo they should be prepared to clean up.

To illustrate, assume the longest BNSF crude oil unit train transported in 2015 was 110 tank cars and that those trains go 45 mph at their fastest.

Under the new formula, the railroad needs to show whether it has the means to pay for a theoretical spill of 47.9 percent of that oil.

Each tank car has a maximum volume of 30,000 gallons, so the train could carry at most about 3.3 million gallons.

At a cleanup cost of $400 per gallon, the new guidelines want to know if the railroad could pay $632.3 million.

If that train were to go 50 mph at its fastest, the reporting amount would be closer to $781 million.

$632.3 million to $781 million
Amount railroads need to show they could pay for a spill in Washington state if their fastest 110-car oil train goes 45 to 50 mph

UTC staff also took into account that supertanker vessels that can carry 84 million gallons of oil through Puget Sound are required to get certificates of financial responsibility through Ecology that cap out at $1 billion, Lewis said.

“If we went much higher in terms of total release or cost of cleanup, it would be difficult to justify a higher cap,” Lewis said.

BNSF challenged similar legislation in California, claiming in court that federal rules pre-empt state laws that try to regulate rail.

When asked whether BNSF would similarly challenge Washington’s rules or still had concerns about the worst case scenarios, BNSF spokeswoman Courtney Wallace wrote that BNSF was committed to work in good faith with Washington to promote safety.

WE HAVE NEVER EXPECTED TAXPAYERS TO ASSUME THE EXPENSE OF A CLEANUP AFTER A DERAILMENT, AND WE STAND BY THE PRACTICES THAT HAVE ALLOWED US TO KEEP THAT RECORD TO DATE.
Courtney Wallace, BNSF spokeswoman

“Nothing is more important to us than safely moving all of the commodities we carry, including crude oil. BNSF is a common carrier and our operations are governed by the Interstate Commerce Commission Termination Act, which generally pre-empts state and local regulations of railroads,” Wallace wrote to The Bellingham Herald.

“BNSF has a strong record of corporate responsibility,” Wallace wrote. “We have never expected taxpayers to assume the expense of a cleanup after a derailment, and we stand by the practices that have allowed us to keep that record to date. BNSF is financially sound with a long history, substantial assets and a track record of being a responsible corporate citizen.”

Because the rule only requires railroads to show whether they could afford that level of spill in their annual report to the commission, rather than requiring they carry a certain level of coverage, the commission believes the rule does not conflict with federal laws.

Annual reports from the railroads are due to the UTC in May.

Bakken Crude, Clean-up costs, Derailment, Explosion, Oil prices, Pipeline infrastructure, Pipeline rupture, Pipeline transport, Tar sands crude

Dangerous energy gamble: Pipelines vs. rail

Repost from the Washington Examiner
[Editor: One significant quote among many: “In the last five years, 423 oil trains have crashed in the U.S. Since 2010, those crashes have cost about $45 million in damages. In just the first six months of 2015, 31 oil train crashes cost almost $30 million in damages…. It’s 5.5 times more likely that oil will be spilled during rail transport than from a pipeline, according to a study by the Fraser Institute, an independent Canadian think tank. The risk of deaths, injuries and spills are higher with rail and trucks since vehicles can hit other vehicles, they travel through population centers and the drivers can err. None of those factors exist for pipelines.” – RS]

Dangerous energy gamble: Pipelines vs. rail

By Kyle Feldscher, 11/2/15 12:01 AM
Fire burns at the scene of a train derailment, near Mount Carbon, W.Va., on Feb. 16. Fires burned for nearly nine hours after the train carrying more than 100 tankers of crude oil derailed in a snowstorm. (AP Photo/WCHS-TV)

Energy companies increasingly have turned to rail to ship crude oil during the fracking boom, but with train crashes becoming more frequent, they are pushing for construction of more pipelines beyond the Keystone XL.

However, that effort is being stymied by the collapse of oil prices and concerns about pipeline safety.

On Wednesday, Shell announced it would stop construction on a site in Alberta, Canada, that potentially holds 418 million barrels of bitumen oil. The company blamed the project’s expense in a time of cheap oil as well as a lack of pipeline infrastructure.

It’s one example of low prices and lack of pipelines prompting companies to reconsider drilling for oil, especially in the Canadian tar sands, where it’s more expensive to drill. Pipeline transportation is typically cheaper than rail, which costs about $30 a barrel more.

Fifty pipelines have been proposed to the Federal Energy Regulatory Commission this year. They would carry the light, sweet crude from shale regions as well as the natural gas that has helped make the U.S. the world’s energy leader. ”

Because of the costs associated with [rail], it’s going to drive up the cost of oil and it’s going to be significantly higher than pipelines on a per barrel basis,” said Dan Kish, senior vice president for policy at the conservative Institute for Energy Research.

Another calculation oil companies must make is the safety of their highly flammable product.

In the last five years, 423 oil trains have crashed in the U.S. Since 2010, those crashes have cost about $45 million in damages. In just the first six months of 2015, 31 oil train crashes cost almost $30 million in damages, mostly due to a major crash in West Virginia.

It’s 5.5 times more likely that oil will be spilled during rail transport than from a pipeline, according to a study by the Fraser Institute, an independent Canadian think tank. The risk of deaths, injuries and spills are higher with rail and trucks since vehicles can hit other vehicles, they travel through population centers and the drivers can err. None of those factors exist for pipelines.

The August study also found oil and natural gas production is rising faster than existing American and Canadian pipelines can handle. Those pipelines would be even busier if production increased in the Canadian tar sands.

Keystone XL, proposed by TransCanada in 2007, would be able to transport 830,000 barrels per day from the tar sands to the Gulf Coast to be refined. Due to the viscous nature of bitumen oil, it’s much easier to transport it by pipeline than by rail, experts say.

When a train carrying oil derails, it’s often catastrophic.

In West Virginia, oil burned for days after 26 oil tanker cars derailed in February. Nineteen of those cars caught on fire and oil spilled into a nearby river. The damages from that crash totaled more than $23 million.

A train derailment in a Quebec community that killed 46 people in July 2013 prompted calls for better rail safety and led some to question whether to transport highly flammable oil at all.

The State Department estimates rail transportation of oil is responsible for 712 injuries and 94 deaths per year, while oil pipelines are responsible for three injuries and two deaths per year.

“For our society, we have to evaluate the value we place on human life and we should make that a priority,” said Diana Furtchgott-Roth, a conservative economist who is the director of the Manhattan Institute’s e21 program.

“The families of those 46 people killed in Lac-Megantic would have been happy to have less oil and having the lives of their family members back.”

Dangerous derailments led the Obama administration to introduce new regulations to make tanker cars safer. The rule, announced in May, requires improvements to braking systems, making tanker cars thicker and more fire resistant and new protocols for transporting flammable liquids.

The number of crashes steadily increased during the last five years, as more trains shipped crude and natural gas, rising from nine crashes in 2010 to 144 crashes in 2014. But as the price of oil plummeted, the amount of crude oil being drilled and shipped leveled off in 2015, according to the Energy Information Administration.

If drilling in the Canadian tar sands in Alberta were to pick up in earnest, State Department officials believe rail transport would lead to 49 more injuries and six more deaths per year. If that oil were to be moved by the Keystone XL pipeline, there would be one additional injury and no fatalities.

Environmentalists, who have been fighting the Keystone XL, point to the State Department’s finding that pipeline spills are often bigger than those from trains and trucks.

They also point to declining oil use and the collapse of prices as great excuses to leave it in the ground.

Zach Drennen, legislative associate at the League of Conservation Voters, said with oil prices as low as they are, it’s economic folly for oil companies to drill in the Canadian tar sands. Without high oil prices, companies can’t afford to build pipelines. They also can’t afford to ship by rail.

That is why green groups think oil companies could be willing to leave the oil in the earth.

“If you look right now, a lot of oil companies are just deciding that’s not where they want to put their money at,” Drennen said.

To Kish, environmentalists’ goal is to make it too expensive to drill.

“They’re going to try and fight against every damn pipeline they can,” he said, “because if they can choke off production and delay construction of pipelines, it causes disruptions.”

But Ken Green, senior director of natural resource studies at the Fraser Institute, said environmentalists’ dream of keeping oil in the ground isn’t feasible.

“The oil in the ground has a market value and everyone knows what the market value is,” he said. “It’s not hard to calculate that market value … My assumption is sooner or later, that value will be sought.”