FARMINGTON — With the U.S. Energy Information Administration scheduled to release its 2014 Annual Energy Outlook report later this spring, the three primary energy drivers in the San Juan market are each bracing for different changes either in the near future, or within a couple of years.
Coal-based energy has been under fire from a range of Environmental Protection Agency rules intended to lessen haze and other air particles, coal is still the most used energy for power generation in the country.
The U.S. Energy Information Administration's Annual Energy Report in 2013 stated that coal production should pick up after 2016, but that might not be the case for two mines in the San Juan region.
Arizona Public Service, primary owners of Four Corners Power Plant, shut down the three units at the power plant at the end of last year to meet EPA emissions rules. The company stated the two remaining units will generate about 1,540 megawatts.
However, coal consumption is expected to be reduced by 40 percent, meaning that BHP-Billiton, operators of Navajo Mine, should expect to provide about 6 million tons of coal in 2014 and beyond, which is down from 8.5 million tons of coal that was used to fuel the five units.
For San Juan Generating Station, Public Service Company of New Mexico, the plants primary owner, has filed paperwork with the New Mexico Public Regulation Commission to retire two units by 2016 to meet EPA requirements for emission reductions. Until then, the power plant should operate at the same capacity as it has been this year and next year.
San Juan Mine sells between six and seven million tons of coal a year to the power plant, said Norman Benally, BHP-Billiton community relations coordinator.
But the questions lingering over the mine and power plant concern what is going to happen to coal sales after 2016. With the utility wanting to close two units, and BHP-Billiton selling Navajo Mine to the Navajo Nation, not to mention the need for a coal sale agreement by the end of 2016.
"Its too early to speculate," Benally stated in an email.
PNM officials are keeping options open because the New Mexico Public Regulation Commission would have to approve any unit closures.
Oil is gaining ground thanks to new exploration and production in the Gallup oil play.
Mancos Shale is bringing new activity to an area that was once a source for natural gas, which has been the San Juan Basin's signature export. Liquid deposits between hard rock layers between 5,000 to 12,000 feet below the ground may revitalize production in the basin.
Between two companies, oil development is getting a $260 million boost to drill more than 40 new wells.
Most recently, WPX Energy announced it plans to expand capital oil investments, translating into a $160 million push for new oil development in the Gallup play area. In addition, the company plans to expand their land leases to 43,000 net acres.
Meanwhile, LOGOS Resources LLC, a local oil and gas exploration company plans to invest $100 million into the Gallup oil play. The company already has access to 13,500 net acres of land for oil exploration, but with the new investment, they are looking to increase their land holdings and increase the number of wells drilled this year.
The Energy Information Administration predicts West Texas Intermediate crude oil, which local oil producers use as a gauge for pricing, will go for between $89 to $93 a barrel through 2015 and expects that domestic oil production will increase through 2019.
Natural gas is expected to remain flat in the coming years but power plants looking to build natural gas units might stimulate interest in gas production.
And with prices expected to stay low, other than normal peaks during colder months, experts say natural gas is attractive as a fuel source for other industrial uses. The EIA expects natural gas to surpass coal as the leading source for power generation by 2040.
In addition, should PNM gain approval to retire two units at San Juan Generating Station, the utility plans to build new natural gas generators to be used at peak times.
Plans call for a 144 megawatt natural gas power facility to be used during times of peak demand, said Valerie Smith, PNM spokeswoman.
New power plants aside, Jason Sandel, vice president of Aztec Well Companies, said he expects natural gas prices and local production to remain largely unchanged.
"We have a supply versus demand problem and that is keeping prices down," he said.
The EIA forecasts that the Henry Hub prices for natural gas will remain about $4 per million btu through at least the summer of 2015.
Sandel says that local gas companies lose between 50 cents to a $1 to costs related to transportation of the gas on every million btu.
Sandel said natural gas drilling companies would need to see gas steadily rise and stay above $5 per million btu before companies invest the money to increase production.
"I look at things from a contractor perspective," he said.Erny Zah is The Daily Times business editor. He can be reached at 505-564-4638.and firstname.lastname@example.org. Follow him @ernyzah on Twitter.