It’s not news that gasoline prices are at or near record highs, here in Colorado and across the country. It is news that neither Governor Polis nor our Democrat-controlled legislature seems interested in doing anything about it.
Many Coloradans do not realize this, but the state has quietly moved up to become the nation’s 5th-highest oil producing state, behind Texas, New Mexico, North Dakota, and Alaska, and on a par with Oklahoma. But as hostile as the Biden administration has been to oil production nationally – the country’s post-Covid oil production is only 90% of what it was before the pandemic, even as consumption has returned to pre-pandemic levels – Colorado has failed to keep pace even with that. We are only at 70% of our pre-pandemic peak. Texas is at 92%; New Mexico is producing 22% more oil than it was in March 2020. Clearly state factors matter.
There is no excuse for either the federal government or Colorado’s state government being caught asleep at the switch over this. Certainly, Russia’s oil production and exports have been disrupted by its war in Ukraine. And certainly, that has caused the dramatic spike in prices since the beginning of the year. However, prices were rising even before the Ukraine war, breaking out of the $2-to-$3 price range they had been in since 2014. They reached a 7-year high in mid-2021, months before we could hear the war drums in Moscow and Kiev.
Those who oppose more production will claim that since oil is a world market, any increase in US production will only minimally affect the price, and increasing Colorado’s production would have even less effect. But historically, the Rocky Mountain region has had the lowest pump price for gasoline in the country, in large part a result of lower transportation costs and proximity to refineries. Oil may be a world market, but it still has local dependencies on production.
It also ignores the effects on Colorado’s own economy. CU’s Leeds School of Business publishes its annual Business Economic Outlook each December. The 2022 edition notes that despite rising prices – which should bring increased production – the mining and natural resources sector is only expected to recover 600 of the 9,000 jobs lost over the last two years, down nearly 1/3 from 2019, and stands at a 15-year low, the result of an increasingly uncertain regulatory environment.
The two bills most responsible for this uncertainty are Senate Bill 19-181 and House Bill 19-1261. SB-181 changed the mission of the state’s regulators from “Otherwise planning for and regulating the use of land so as to provide planned and orderly use of land and protection of the environment in a manner consistent with constitutional rights,” replacing that balanced formulation with instructions to “protect and minimize adverse impacts to public health, safety, and welfare and the environment.” No mention of constitutional rights or orderly development.
The Colorado Oil and Gas Conservation Commission (COGCC) has been responsible for most of the still incomplete rulemaking, while the Air Quality Control Commission (AQCC) has been involved in permitting.
The bill also allows local governments to enact measures stricter than – although not more lenient than – their state counterparts. It not only multiplies the number of agencies a driller has to deal with. It also runs the risk that a company will find competing, potentially incompatible, standards imposed by different counties on the same project, and have to mediate among them.
One specific example was a change in the permitting process. In early 2021, the government deleted the entire backlog of permits. It took several months before the any new permits were even applied for, and the industry is still trying to figure out the permitting process. Companies used to get approval to build out the pad at the rate of roughly 30 permits a month. In 2021 they got approval for 5; so far in 2022, the state has approved 4 such applications. That’s quite a drop, even with a decline in the number of applications. And it doesn’t include the separate process for a permit to actually drill.
In 2013, according to the US Bureau of Economic Analysis, oil and gas accounted for 3.1% of Colorado’s economy. By 2019, that had nearly doubled to 6.0%, and roughly $21 billion, in 2012 dollars. The state itself estimates that those new regulations have added $500 million to the cost of doing business here in Colorado; the Colorado Oil and Gas Association believes that figure to be considerably higher. And that’s just from the existing regulations; there is additional rulemaking still left to be done.
What the industry needs most right now is a break from the rulemaking process that will make it easier for both companies and the government to understand the rules already made. It would also help if the government figured out a way to expedite the applications that are in the hopper, since those are properties that companies want to drill now. It might also pull more applications into the process.
Peace could break out at any moment, and with it, break the fever of skyrocketing oil and gas prices. This should change nothing. Like it or not, for the foreseeable future our economy depends on oil, and the vast majority of people drive gas-powered cars, trucks, and farm equipment. Colorado should be contributing to insulating our economy from events beyond our control, not making us more vulnerable to them.
Joshua Sharf is a senior fellow in fiscal policy at the Independence Institute, a free market think tank in Denver.
