Politics remain charged around year-old state drilling regulations

Predictions of economic doom that surrounded the environmentally tougher oil and gas drilling regulations put in place in Colorado more than a year ago would seem to have lost power. The political rhetoric has cooled somewhat, other states are now weighing implementing their own Colorado-style regs, and drilling activity is slowly picking up again on the Western Slope.

Yet the issue remains a deeply polarizing one for residents of gas-rich counties, where some fear a return to the industrialized boom days of the previous decade while others long for another up-cycle and its promise of more oil and gas jobs and tax revenues.

Republicans seeking the governor’s office in November have promised to either gut the drilling regulations and sack anyone with an environmental bent presently sitting on the state’s oil and gas regulatory board – the Colorado Oil and Gas Conservation Commission (COGCC) – or at a minimum to reopen the rulemaking process that led to the new regulations.

“The reality is there’s some apprehension about the political climate, where things are going, and we fear that Battlement Mesa as a community may be victim of the political process,” said Dave Devanney of the grassroots activist group Battlement Concerned Citizens. His fears are legitimate: the Garfield County community of more than 5,000 is facing a proposal that would see 200 new natural gas wells drilled near homes and public facilities.

Industry views and boom and bust realities

The most often cited industry complaints include delays in getting drilling permits approved and the added expense and bureaucracy of Colorado Division of Wildlife input on the impacts of drilling activity on wildlife habitat.

Industry representatives won’t point to specific rules they want changed (the Colorado Oil and Gas Association is suing the state over the economic impacts of the new regs), but do say the permitting process is getting smoother.

“A year into the rules we appreciate the way that Department of Natural Resources and COGCC have worked with industry to remove inefficiencies and streamline administrative hurdles in the permitting process,” COGA President Tisha Conoly Schuller said.

“Regulatory certainty and permitting efficiency continues to drive our efforts. Because we work actively with agencies on these items, we don’t comment on them in the press. We want to have face-to-face conversations with agencies that are positive and productive.”

Democrats and members of the environmental community say the regs were needed to protect air and water quality, public health and wildlife habitat before the next boom. Drilling dropped off dramatically beginning in the fall of 2008, well before the new rules went into effect in April and May of 2009. Now signs point to a slow industry rebound.

According to the industry standard Baker Hughes Rig Count, Colorado had 53 active rigs as of mid May, up from 45 in May of 2009 but well behind the record pace of 122 in May of 08. Still, it’s a marked improvement from the low-water mark of 38 active rigs in November of ’09.

Natural gas prices continue to languish around $4.30 per MMBtu (million British thermal units) after bottoming out around $2.50 last summer, but Democratic Gov. Bill Ritter – who has been demonized in some parts of the state as the job-killing architect of the new drilling rules – actually championed a bill last session to bolster the domestic natural gas market.

The move from production to markets

His Clean Air, Clean Jobs Act compels the state’s largest utility, Xcel Energy, to shut down or retrofit coal-fired power plants on the Front Range in order to convert 900 megawatts of coal-generated electricity to either natural gas or renewable sources by 2017. He also successfully pushed through an increase in the state’s renewable energy standard from 20 percent by 2020 to 30 percent.

“To me, this one of the most significant pieces of legislation for the oil and gas industry probably in the history of the state,” COGCC director David Neslin of Clean Air, Clean Jobs. “The industry has been focused on production historically, but with the new shale plays in the eastern United States, which are closer to major population centers, with the diversity of additional energy resources, one of the biggest issues is going to be creating markets. It’s a great win-win, not for the coal industry necessarily, but for the oil and gas industry.”

According to the U.S. Energy Information Administration, more than 70 percent of electrical power generated in the state comes from burning coal. Natural gas, which burns about 50 percent cleaner than coal, accounts for just 25 percent of the state’s electricity generation.

Colorado produces roughly 5 percent of the nation’s natural gas but uses only about 40 percent gas power to generate residential heating and electricity. About 75 percent of the homes in Colorado use natural gas for heating, one of the highest percentages in the nation, so increasing the domestic gas market for generating electricity would likely ease political tensions – if not the concerns of “Gas Patch” residents impacted by drilling.

“With regards to Clean Air, Clean Jobs, we support the leadership and bi-partisan effort that passed this bill,” COGA’s Conoly Schuller said. “We also embrace the opportunity to work with the environmental community, and we recognize that we need to continue to build the confidence of stakeholders in the environmental stewardship of the industry.”

A narrowing discussion in the governor’s race

With Ritter out of the race for the governor’s mansion, Democratic frontrunner and Denver Mayor John Hickenlooper, a former geologist, is taking an even more conciliatory stance on oil and gas drilling, saying in January he would have tried a different approach to the new regs.

“John believes we can protect our water and natural areas and still have a robust natural gas industry,” Hickenlooper spokesman George Merritt recently told the Colorado Independent. “Most of the rules that were adopted were already the industry standard for major companies.

“Rather than opening another combative [rulemaking process], John believes we can work with industry officials through the commission’s normal course of business on specific issues that are a bottleneck to creating jobs without affecting environmental and health protections.”

That’s actually similar to what a spokesman for Republican gubernatorial frontrunner Scott McInnis told the Colorado Independent earlier this year: “[McInnis’s] view would be that early in his term – granted you have [COGCC] members whose terms have to run – but his view would be to start the conversation on what are the best practices, what changes do we need from the status quo to reflect best practices, particularly in terms of the environment, but at the same time balance that with trying to return to a jobs focus,” McInnis spokesman Sean Duffy said.

Next: Other states are playing catch-up to Colorado when it comes to regulating oil and gas drilling to protect water supplies, air quality and wildlife habitat.

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