The downturn in the energy markets happened fast and didn’t slow until early this year.
While the repercussions aren’t over for the state, severance taxes are beating projections by more than 7 percent for the year. Yet at the same time, sales and use taxes are down $3.5 million from an already modest projection by state economists in January. With lower production and lower prices, money to keep Wyoming’s teachers paid, its county services staffed and its savings account intact will be slow to return.
Nonetheless, a snapshot of Wyoming’s key energy industries today isn’t as dire as some may expect. Its three biggest economic drivers — oil, gas and coal — have stopped sliding rapidly downhill.
From independents rolling ahead with gas projects in southwestern Wyoming, to coal companies strengthening their payrolls, things are better than they were, and current conditions are unlikely to change for a little while.
Crude oil, which is refined to make a bevy of products from gasoline to plastics, is perhaps the cornerstone of the energy economy of Wyoming.
Prices have stabilized after a rise and fall earlier in the year. Since spring, West Texas Intermediate has hovered in a $45 to $50 band.
Though prices are low, stability matters to producers, said John Robitaille, vice president of the Petroleum Association of Wyoming.
“We certainly would like to see the price a little higher than it is,” he said. “But I think the stability has given some folks enough confidence to go ahead and move forward on some projects.”
There are 26 rigs operating in the state, up from eight a year ago this week, according to Baker Hughes. Applications to drill nearly doubled in the first half of the year, from the same period in 2016. And federal and state lease sales have revealed significant interest in Wyoming plays, particularly in the Powder River Basin, where the economics of drilling have improved in the last few years.
“Every company has a different view on what is a tipping point to go forward or to hold back,” Robitaille said. “But I think what we’re seeing now is we are seeing some confidence in the market and some confidence in what the near future looks like.”
The market has leveled off, he said. That stability should last into the near future.
The price of natural gas is low, and a sustained low is to be expected. No longer does the price occasionally push past $10 as it did a decade ago.
“There is a lot of supply available, and that tends to stabilize prices,” said Brian Jeffries, executive director of the Wyoming Pipeline Authority. “In this case it’s putting a downward pressure on prices. “
But that’s not all bad for gas in Wyoming.
Liquefied natural gas ports being built along the coasts will allow the market to expand across the sea to new buyers. The prospect of global demand is rapidly lighting the way forward for operators. Though the U.S. will face competition from other countries like Indonesia and Australia, expanding will likely benefit the industry nationwide.
Wyoming, once held back by a lack of gas lines to carry the product out of the state, is no longer at max export capacity, he said.
“The most important thing is we are not constrained by pipeline capacity, so the price of natural gas in Wyoming travels in sympathy with the price of the rest of the country,” he said, comparing price differences now to years before when the difference could be multiple dollars. “We are not materially different than the price in other production areas like the Permian Basin. That was a problem we used to have.”
In addition to the liquefied natural gas potential, increased pipeline construction connecting the U.S. to Mexico is another boon for the Rockies industry.
Wyoming’s gas fields have seen quite a bit of increased interest as some companies move out to focus on the Permian down in Texas, and others move in on that inventory to grow their own companies.
There are also some long-term projects finally nearing the end of permitting. Jonah Energy’s 3,000-well NPL project finished a public review period on its draft environmental impact statement this week. The project first proposed by Encana in 2011 is edging closer to a final draft and a likely approval.
But the outlook is hard to predict, said Jeffries. What drives new development in Wyoming’s gas fields comes down to the economics of the wells in a given play, at a given price.
“The majors, and the big independents, they always have a drilling inventory with a pecking order,” Jeffries said. “Each year they figure out a budget for drilling and they rank their choices … They will go to the best ones first.”
Coal hasn’t made a full recovery since the industry was rocked by a perfect storm of market events starting in 2015, and neither has the region most affected by its downturn. But the industry is relatively stable after its rocky decline.
There were three main drivers to the fall of coal. After two unseasonable warm winters in a row, demand for coal tumbled. Power companies used up the supply of coal sitting at their plants and at times chose to buy out of their contracts for coal rather than take on more. At the same time, large companies started to buckle under debts they picked up when Asian demand for coal seemed insatiable.
A whopping third blow to Wyoming coal came from one of the state’s key industries: natural gas. The low price of gas has been a sustained burden for coal, as gas takes more of the market both commodities vie for: electricity.
The factors took hold over a two-year period, and 1,000 coal jobs were wiped away from the Powder River Basin as a result. Campbell County’s overall value — the worth of all its assets from real estate to industry— was down $1 billion from 2016 to 2017.
Of the 1,000 jobs lost, about 330 had returned as of last month. Employment at the mines is unlikely to rise significantly, according to industry advocates. For the moment, coal employment in Wyoming has steadied at a new, lower number.
Other factors have changed since the downturn helping coal find even footing.
The companies in turmoil have cleaned up their balance sheets, shed their debts through restructuring and are watching every penny. Most were in the black — they earned more than they spent — for the first and second quarters of the year.
Lastly, President Donald Trump, who campaigned on bringing coal back to life, was elected in November. The president and the conservative majority in Congress are putting pressure on regulations that squeeze coal-fired power generation and by extension coal producers in the PRB.
The Clean Power Plan, which would penalize carbon dioxide emissions and disproportionately affect coal, is stalled out in court.
Coal hasn’t been given much of a helping hand policy-wise. Politicians can’t change the competition coal faces long term with natural gas, and they have yet to propose anything that would slow the retirement of coal-fired plants or encourage new ones to be built.
As long as the price of natural gas stays in the $2.50 to $3 range, Wyoming coal should be able to hold on to a market share for some time, proponents of the industry say. But the low price has already done significant damage to the coal industry.
A national grid study released Wednesday night by the Department of Energy found that “the biggest contributor to coal and nuclear plant retirements has been the advantaged economics of natural gas-fired generation.”