Environment and Energy

Prop 112 Vote Threatens Colorado Energy Industry

Written by Tim Triplett

Voters who go to the polls in Colorado next month will consider Proposition 112, a measure with serious implications for the energy industry in their state, and beyond.

“If this passes, not only will it devastate our economy, but also the economies of surrounding states,” an executive from a steel fabricator in Denver told Steel Market Update, expressing concern about the impact on her company and others that serve the oil and gas sector. Proposition 112 could set a precedent, she noted, and inspire similar initiatives by environmental groups across the country.

If approved by a majority of the voters, Proposition 112 would mandate that new oil and gas development, including fracking, be a minimum distance of 2,500 feet from occupied buildings such as homes, schools, hospitals, and other areas designated as “vulnerable.” Vulnerable areas include playgrounds, sports fields, amphitheaters, parks, open space, drinking water sources, irrigation canals, reservoirs, lakes, rivers, perennial or intermittent streams and creeks, and any additional vulnerable areas designated by the state or a local government. The new rule would more than double the current restrictions that specify oil and gas wells must be 1,000 feet from high-occupancy buildings such as schools and hospitals, 500 feet from occupied buildings such as homes, and 350 feet from outdoor areas like playgrounds.

Supporters argue that oil and gas operations adversely impact public health, safety and the environment. People living near these operations report noise, traffic, dust and odors, along with health issues such as sinus and respiratory conditions, headaches and nausea. They point to a May 2017 incident in which an abandoned gas line beneath a home in Firestone, Colo., caused an explosion that killed two people.

Environmental groups seeking to outlaw fracking also number among supporters of Proposition 112. They contend that fracking–the high-pressure injection of water and chemicals underground to release oil and natural gas from the shale–poses a threat to drinking water and may even contribute to earthquakes. “Currently, fracking operations are allowed to take place just 500 feet from a home and 1,000 feet from a school building. The industry has shown blatant disregard for public health and safety, and the current state regulatory body has not provided responsible protective regulatory oversight to prevent inappropriate siting of toxic fracking operations adjacent to homes, schools and water sources,” said a member of the group Colorado Rising.

Opponents of Proposition 112 cite various studies that show the new 2,500-foot setback requirement would prevent oil and gas development on about 85 percent of nonfederal state and private land. The result would be the loss of almost 150,000 jobs, with 77 percent of layoffs taking place outside the energy industry in sectors like health care, construction, hotels, restaurants and retail. The state economy would suffer between $169 billion and $217 billion in economic losses over the next 12 years. By 2030, the annual loss would exceed $26 billion, by some estimates. That Proposition 112 should be defeated is one of the few issues on which both the Republican and Democratic nominee for governor in Colorado agree. 

As noted in a Denver Post editorial opposing the measure, “Proposition 112 is written in such a way as to effectively ban oil and gas operations in a state with rich reserves waiting to be developed…. The effect would be a ban on oil and gas exploration of Colorado’s Denver-Julesburg Basin. That’s the area in northeast Colorado where most of the state’s drilling activity is occurring. With such a ban would come an exodus of oil and gas companies from the state, the high-paying jobs they create directly and indirectly, and the taxes they pay to state and local governments.”

Such a back-door ban on oil and gas drilling in Colorado, and possibly other states to follow, could hurt demand for steel, notably OCTG and line pipe. Colorado is probably best known as the first state to legalize recreational marijuana. When the smoke clears from the upcoming vote, it could be the first to essentially criminalize fracking.

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