Denver, Energy, Environment, Exclusives, Joshua Sharf, Uncategorized

Sharf: DIA’s green virtue signaling math doesn’t add up

Several weeks ago, the Denver Department of Aviation, which runs Denver International Airport (DIA), announced that it would permanently plug the 64 oil and natural gas wells that it owns and operates on its property.

It will be doing this as a “sustainability decision that aligns with Mayor Hancock and Denver City Council’s climate goals and the airport’s goal of becoming the greenest airport in the world.”

Given the thousands of gallons of fossil-fuels burned at DIA every day, this is a remarkable bit of green virtue signaling.

According to the Denver Post, the wells produced $7 million in revenue in 2010.  By 2017, oil and gas prices had declined enough that they brought in only $2.3 million.  According to DIA, the primary customers for the oil was Suncor, while Anadarko bought the bulk of the natural gas.

The wells have been out of service since 2018, producing no revenue.

Despite being out of service, the wells still require annual maintenance to the tune of $750,000 a year.  Every 5 years, the Colorado Oil & Gas Conservation Commission (COGCC) requires additional mechanical integrity testing (MIT), costing a total of $2 million.  Amortized over the five years, that brings the total maintenance costs to $1.15 million annually.  That MIT is next scheduled to be done in 2025/06, meaning that it was completed last year and this.

The Post also reported that the most recent estimate for plugging the remaining wells was $9 million, quoted in 2019.  DIA reports that there is no more recent estimate, and that the project will be put out for bid.

DIA justifies the decision financially by claiming that it is comparing the cost of plugging the wells with the cost of ongoing maintenance on the wells in their current non-operational state.  Using that math, the payback period on the plugging is about 9 years.

But that means that they waited until after the current MIT was completed in 2020/21 to make this decision.  And it means, by definition, that they never intended to make the wells operational again, even before this decision was formally reached.  Waiting until after you’ve blown $2 million maintaining wells you’re not planning on using to announce this decision is seriously irresponsible.

And it also is a frank admission that the decision wasn’t financial, but purely political.

DIA claims that, because it knew it was never really going to restart these operations, it has never bothered to get an assessment of how much oil and gas is still in the ground.  Instead, it claims that, “given the price of oil/gas over the last few years, it is likely the operation would have been breakeven or slightly profitable at best.”

That may or may not be true for 2020, but in 2021 the price of oil and gas is back at 2010 levels, when it was clearly making money on the deal.  It shouldn’t be allowed to get away with pretending that it couldn’t have re-started operations this year if it had wanted to.

Right now, I don’t have access to the amounts pumped in 2010 or 2017, but we can do a back-of-the-envelope calculation based on market prices, assuming similar amounts pumped.  The prices, as mentioned, are around 2010 levels.  So for the current year, we’re looking at about $7 million in revenue.

In theory, the oil and gas sitting underneath the ground is an asset that DIA is choosing to assign a value of $0.  But DIA won’t have to write down this asset on its balance sheet because its primary business is burning jet fuel, not pulling it out of the ground.  Which raises another useful comparison, one between the oil burned by planes using DIA and the oil not pumped out of its turf.

A barrel of oil produces about four gallons of jet fuel.  According to Boeing, a 737 burns 5000 pounds of fuel on takeoff, or about 750 gallons, translating to about 190 barrels of oil.  In 2019, DIA saw about 250,000 air carrier flight takeoffs.  Multiply that out, round up for the other planes using the place, and just for takeoffs, DIA is burning about 50,000,000 barrels of oil a year.

In 2017, oil was about $50 a barrel, and DIA reported $2.3 million in sales.  If half of that was from oil, it comes to about 25,000 barrels.  Or roughly 0.05% of what its planes burn on takeoff.

But no one ever said that environmental virtue signaling has to actually make any sense, it just has to feel good, whatever the cost.

Joshua Sharf is a Denver resident and regular contributor to Complete Colorado.

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