Recovering commodity prices mean Wyoming’s 2018 economy is likely to be better than last year, but several long term trends suggest the Cowboy State continues to face several roadblocks to significant growth.
With oil prices pushing $60 per barrel and natural gas prices improving as well, many of the challenges caused by the energy bust that hit Wyoming two years ago may be eased. The improvements in the oil and natural gas industries are important because the state relies on energy companies for roughly 70 percent of its tax revenue and the bust has led to a several-hundred-million dollar budget deficit.
Revenue projections made last October found that the state had enough to cover its standard budget, meaning the regular cost of providing state services with the exception of education. It was an improved commodity price forecast that led to the boost in projected revenue.
“Those are things that I think are going to make the state’s budget easier,” said University of Wyoming economist Rob Godby. “It seems that we have a reasonably sustainable budget at current level.”
But a stabilized natural resource sector isn’t enough to fix the state’s larger economic woes. Even the higher oil prices are unlikely to drive the benefits normally associated with a strong energy industry in Wyoming, such as higher sales tax revenue and service industry jobs catering to the industry.
Jim Robinson, an economist with the state’s Economic Analysis Division, said that oil companies, for example, will need to see another six months or so of $60 per barrel prices before they expand operations in Wyoming.
The good news is that prices have remained around that point for several months already and Robinson said it appears that global demand and supply reductions by some foreign nations will keep prices high for at least a few more months.
“Some of it is companies are waiting to see if prices are really going to stay that way, even get better,” Robinson said. “The industry just needs to see those prices are going to be there for more than one more month.”
But Robinson cautioned that once production is increased, the prices may fall once again as the supply exceeds demand.
Mark Haggerty of Headwaters Economics in Montana said that while oil and natural gas were likely to be stronger in 2018 than in the last two years, coal is expected to see a long, downward trend.
“Coal has changed from a stable, predictable base load source of generation to one that is now dispatched over a shorter time frame with other fuels,” Haggerty said. “That’s one of the reason why the energy markets that affect Wyoming are less certain now.”
Outside of energy, both Godby and Haggerty said that Wyoming is facing long-term challenges that are unlikely to be solved over the next twelve months.
Haggerty said that big cities are increasingly the center of economic activity because modern industries like high-tech require clusters of similar companies and a highly-educated workforce. Some smaller communities in the Mountain West have found success in creating clusters of economic activity, but those towns usually have what Haggerty referred to as the “golden triangle”: a national park or other attractive outdoor offerings, an airport with flights to major destinations around the country and a university.
Wyoming lacks any community that ticks all of those boxes and with the state coming off the largest population drop since the 1980s, Godby said that even if Wyoming’s energy economy stabilizes, the success of neighboring states like Montana, Idaho and Colorado is likely to hurt Wyoming.
“The economies around us are some of the hottest economies around the country so potentially they will continue to draw population out of the state,” Godby said. “We’ll just have to see.”