Destroying Coal Power Plants In Oil And Gas State—Will Oil Be Next

Originally published on Forbes.com on August 30, 2024

As more EVs sell, oil demand falls, and oil production will slow. With this information, New Mexico planners can be proactive, follow the sales of EVs, and adjust for the gradual loss in oil revenues.

Coal is going away, at least in western nations. Burning coal in power plants to make electricity causes asthma and other maladies from particulate matter and metals, and causes global warming due to CO2 and nitrous oxides that rise to higher altitudes. For comparing CO2 emissions, oil is just about as dirty as coal, while natural gas and LNG are only half as dirty. 

In this story, a coal power plant is demolished in New Mexico, which is a proactive climate change state. But its also a big oil and gas state, number 2 in the U.S. after Texas.  So, if coal is going away in the energy transition, will big-oil be next? It’s a serious question. It’s also dilemma for New Mexico, where 35% of the state’s revenue comes from oil and gas taxes.

The Story

The San Juan Generating Station, as the story was reported, lies in the northwest corner of the state, west of the city of Farmington, which is the commercial center of the San Juan basin. The basin used to be one of the highest producers of gas in the U.S. (although never much oil) until the shale revolution opened up new basins that overtook the San Juan.

The power plant was commissioned 50 years ago, and at its peak generated 850 MW (MegaWatts) that could supply 150,000 homes. The demolition was approved after considering proposals that would refurbish the plant into clean energy operations including CCS (carbon capture and storage). These proposals were initiated by the city of Farmington, a part owner of the power plant, and an independent company called Enchant Energy, but the proposals failed.

Buried dynamite destroyed the 4 smokestacks in the San Juan Generating Station. Source Albuquerque J., Eddie Moore/Albuquerque Journal.

An impressive view of the smokestacks crashing down is shown in a public video by Curtis Ray Benally of the Santa Fe New Mexican. You can jump to 30 seconds to save time.

But who made the decision to demolish the plant? It wasn’t PNM, the Public Service Company of New Mexico, who was the majority owner. Nor was it the governor. It was the San Juan County, who argued to protect public health and the environment from the exhaust gases of burning coal. PNM, who was the majority owner of the plant, initially resisted the decision, according to the report.

The demolition was overseen by PNM, the major utility provider in New Mexico, who as it happens were required to meet the goal of 50% renewable power by 2030, as well as become carbon-free by 2045. This was set by a state law called ETA (Energy Transition Act) that was signed as an executive order from the governor, Michelle Lujan Grisham soon after she came to office in 2019.

The power plant demolition won’t be complete until the end of 2025. Roughly 90% of the materials from the power plant are planned to be recycled.   But lying on the same piece of land, owned by PNM, is a solar farm—a symbol of the future perhaps.

450 jobs were lost when the power plant shut down. The state government has helped by providing $20 million in energy transition funds to reskill workers and to support affected communities in other ways. PNM also raised a retirement benefit from $5,000 to $10,000 to allow workers to study at universities or colleges. 

The plant had employed over 1,500 workers, about half being Native Americans from tribes such as the Navajo, if indirect employment like suppliers was included. The average salary was $86,000 in 2022 dollars which supported a “Navajo middle class” in San Juan County where the poverty rate was 27% in 2022.  The community has struggled, hard choices have to be made, and hard feelings exist. 

PNM own just one more coal-burning power plant, the Four Corners Power Plant, and this is scheduled to be decommissioned by 2031.

Dilemma For New Mexico

Apart from the dilemma of personal job losses and family hardship during the transition away from coal, the state is confronted with major economic issues in the eventual transition away from oil, the next fossil fuel.

Governor Lujan Grisham began her appointment in 2019 with an executive order to set up the ETA. This was later followed by separate new rules to reduce methane and ozone emissions from oil-producing wells to levels that are best in the nation.

The ETA focused on transition to electricity from wind and solar. But it was understood that the state’s greenhouse gas (GHG) emissions, from all economies, would aim for net-zero by 2050. But a report in mid-2023 suggested the state was failing in its goals. Two areas that should be addressed quickly included, first, comprehensive climate change legislation, and, second, stronger regulation of GHG emissions. The report said the state wouldn’t achieve the goal of 45% reduction in emissions by 2030 under policies that existed then and now.  

One big reason is the oil and gas industry. Oil production in New Mexico has doubled from 2019, when Governor Lujan Grisham came into office, to 2024. On a global basis oil and gas contributes about 50% of the world’s GHG emissions. Combined, GHG emissions are a big problem for an oil and gas state such as New Mexico.

What options does New Mexico have? Does it cut back on drilling and fracking new wells? Does it replace oil wells by solar farms? Or does it cut back on methane emissions from wells and stock tanks and pipelines and refineries. This last one ignores the fact that when oil and gas is sold to overseas consumers, what’s also being sold is a high content of GHG emissions when the oil and gas is burned. But there is one more option: does the state plan to use CCS to bury excess GHG to offset the emissions when its oil and gas is burned? Each of these options is a possible choice.

But in New Mexico there is a tidal force opposing all of these choices. The revenue in New Mexico that comes to the state from oil and gas taxes amounts to about 35% of the state’s total revenue. In the past three years, the revenue has increased year by year as the number of wells and production of oil in the Delaware basin has increased (the Delaware is the western section of the Permian basin).

It’s obvious that New Mexico will be reluctant to turn off the spigot of oil revenues, without finding another goose that lays golden eggs. Instead, they will probably wait for oil demand to fall, and it will fall as cars and trucks switch from gasoline to electric. This is accelerating across the world.

Two bookends for global oil demand falling: Current trajectory and Net Zero. Source: BP Energy Outlook 2024.

As oil demand falls, oil production will slow despite a temporary lift in sales to Southeast Asia. With this information, state planners must be proactive, predict the sales of EVs, project the fall of oil demand, and start adjusting now for the gradual loss in oil revenues to the state’s coffer.

Is The Coal Era Over Or Not?   

He answer is yes and no. The U.S. and Australia, for example, share the sins and profits of coal and oil/gas. They are both top world producers and exporters of coal, the ugly side of fossil fuels. And two huge countries, China and India, are building their economies on coal, because its available, and inexpensive to build coal-fired power plants. They want to lift their economies to a level more like the western nations. As a result, their commitment to net-zero emissions will be delayed—until 2060 for China and 2070 for India.

At the same time, the U.S. and Australia are closing down coal-fired power plants, and replacing them by wind and solar power plus batteries, or by gas-fired power plants.

At the same time, the U.S. and Australia are exporting LNG, usually more expensive than coal but much cleaner in CO2 emissions when the fuel is burned. The immediate future should see LNG replacing coal in power plants around the world (see an insightful discussion of the golden age of LNG). The long future, however, would likely see wind, solar and batteries replacing LNG. By some reports, wind, solar and batteries, while definitely cleaner in respect to emissions, are also cheaper to build and run.

Another similarity for the U.S. and Australia is the uptake of electric cars and trucks. In the U.S. (7.5% average) and Australia (7.2% average), the uptake is slow, compared with countries like Norway and China. But it will speed up, and 2025 is expected to be a year of the big jump. This will be a firm signal of falling demand for oil.