With Democrats poised to win Colorado’s second U.S. Senate seat, solidify their hold on the state legislature and possibly win commissioner seats in key energy-producing counties, former Republican congressman Scott McInnis warns the state’s natural-gas boom is about to bust.
“This gas boom’s about over for Colorado,” McInnis told The Colorado Independent last week. “Those people who think we’re bulletproof on the Western Slope, I’m telling you now … the energy industry is going to be going into a major slowdown here in Colorado.”
McInnis, who last week predicted a statewide Democratic landslide on Tuesday, blames the looming bust on the more restrictive drilling regulations currently being drafted by Democratic Gov. Bill Ritter’s administration, as well as a slew of other factors the six-term U.S. representative from the Western Slope predicts will chase the industry out of the state.
“One, you have a limited number of rigs. Two, the price of natural gas has dropped significantly. Three, the cost to produce natural gas in the Colorado Rockies is amongst the highest production costs in the nation [due to geological conditions],” said McInnis, who has been doing some energy industry lobbying for a Denver law firm since leaving office in 2004.
“On top of that you’ve got a governor that is very insistent on rules and regulations that seem to be punitive in their nature,” McInnis added. “I don’t mind you tighten it up, and I think we should absolutely insist on best practices, but there’s a difference between best practices and no practice.”
The price of natural gas has dropped by about 50 percent since July — from a high of more than $13 per MMbtu (million British thermal units) to $6.783 per MMbtu at the close of trading Friday — but that decline is mostly due to the economic downturn and an anticipated decrease in consumption, analysts say.
Meanwhile, production remains at an all-time high in Colorado, the sixth biggest natural gas-producing state as of 2006, according to the Energy Information Administration. As of 2005, there were 63,000 active, inactive or permit locations for oil and gas wells in the state, according to the Department of Natural Resources, and about 35,000 of them were active (see map) as of July.
In Garfield County, where McInnis grew up in Glenwood Springs (he now lives in Grand Junction), there are nearly 5,000 active wells, with another 1,000 coming online every year. McInnis contributed $10,000 to a 527 group weighing in on behalf of the Republicans in a heated Garfield County commissioner race, painting the two Democrats as anti-energy.
McInnis says the new, more-restrictive drilling regulations, coupled with a possible severance tax increase in the form of Amendment 58, will send companies to states such as Wyoming with a friendlier political climate and less regulation. According to the Petroleum Association of Wyoming, that state — second only to Texas as a natural-gas producer — had 36,000 active wells as of 2006.
But Amendment 58, which would raise an additional $321 million a year for higher education, wildlife habitat protection and renewable energy projects, would only bump Colorado’s severance tax from the lowest among major energy-producing states to the third lowest.
Another Grand Junction resident, Democratic state Rep. Bernie Buescher, who’s up for reelection and hopes to become the next speaker of the state House, said in an earlier interview that he’s confident the new regulations will strike the right balance between environmental protection and tapping into a valuable resource.
“[The drilling regs are] not going to shut things down,” Buescher said. “When you talk to the leaders of the industry, they acknowledge that it’s not going to shut things down, but it could decrease the amount of investment that occurs in Colorado.”
Still, Buescher said there’s simply too much gas on the Western Slope for the industry to completely pull up stakes.
“The natural gas in western Colorado is a huge resource,” Buescher said. “I had someone send me a copy of a newspaper advertisement that Haliburton is running up in Telluride. They’re trying to hire people all over the state, and the advertisement said, ‘We’re not leaving.’”
Buescher said Ritter’s emphasis on a new-energy economy — investing heavily in renewable energy research and development — is compatible with ongoing oil and gas production.
“Again, there’s a way to make this work, and I just very firmly believe that there are a lot of folks on the industry side, a lot of folks on the governor’s side, who want to find common ground,” he said. Even McInnis agrees with that conclusion, up to a point.
“Of course what the governor is saying is absolutely right,” McInnis said. “The reality is new energy is the future, not just for Colorado but for the whole world, and we’ve got to do it, but on the other hand we should not do it at the exclusion of the current resources that we have.”
McInnis also told The Colorado Independent last week that he would have beaten Democratic congressman Mark Udall, who leads Republican Bob Schaffer in most polls in the race for Colorado’s open U.S. Senate seat. Udall says voters on the Western Slope, where Schaffer trails by double digits, understand the future is in renewables and that oil shale production is decades away. Udall promises to pursue imposing another commercial leasing ban if elected.
“Voters are smarter than some of the pundits, some of the consultants, some of the media people give them credit for,” Udall said during a campaign stop last month in Edwards. “They understand that, yes, we have to do some more drilling, but that isn’t the answer in the long run.
“The people on the West Slope know my record,” he added. “They also know I’m for responsible energy development but not at the sake of our air and water and our wildlife.”