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Energy Journal: Four revealing takeaways for energy from Wyoming's financial report
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Energy Journal: Four revealing takeaways for energy from Wyoming's financial report

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After a series of searing budget cuts, Wyoming’s fiscal picture has shown some signs of improvement, according to a state financial report published last week.

Though the state still faces a gaping revenue shortfall — estimated at $750 million — it’s about 50% less than was initially forecast in May. Some revenue indicators, like sales tax, even exceeded analysts predictions.

But a considerable portion of the budget still hinges on the health of Wyoming’s minerals industries.

In fiscal year 2020, the amount of severance taxes collected by the state hit a low not seen for 17 years. Severance taxes are levied on companies when they extract Wyoming’s minerals. It’s a concerning trend for a state heavily reliant on severance taxes, federal mineral royalty payments, and sales and use taxes.

The Star-Tribune identified four takeaways from the Consensus Revenue Estimating Group (CREG) report to better understand what these projections could mean for Wyoming’s energy sector.

1. Oil’s recovery will be sluggish

In 2019, oil was booming. Production last year increased by 15.3 million barrels or 17%, marking the biggest year-over-year growth in production in a decade.

But times have dramatically changed.

The economic fallout associated with the pandemic was “abrupt and severe,” for Wyoming’s oil and gas business, according to the report. A global oil price war sent oil prices tumbling, forcing Wyoming operators to slash production here by 45% in a single month. Meanwhile, a dramatic dip in demand for fuel only compounded the glut in supply.

Wyoming’s oil industry has been on the road to a sluggish recovery since falling this spring. But returning to the lucrative levels of 2019 will take time, the report found. That’s mostly because external factors causing changes in oil markets remain far beyond Wyoming’s control.

According to Don Richards, Wyoming’s budget and fiscal administrator and CREG co-chairman, it could take until at least the beginning of 2022 for Wyoming oil production to recover to pre-COVID-19 levels:

“The improved revenue collections from the extractive industries since FY 2016 has been led by the strength of Wyoming oil, with a supporting role from natural gas," the report stated. "The current forecast relies heavily on an eventual rebound in oil receipts, recognizing oil’s contributions to state revenue exacerbates, rather than mitigates, Wyoming revenue volatility.”

2. A short glimmer for coal

Coal production also took a hit during the start of the pandemic this year.

Wyoming Department of Revenue records show monthly coal production dropped from more than 22 million tons at the end of 2019 to just 14 million tons in April.

That said, the summer and fall seasons boded slightly better for coal, and a one-time boost in production is forecast for 2021, due to less competition from natural gas.

But that short period of relief will be temporary for Wyoming’s top mineral.

The report predicts “Wyoming coal production to continue its slide.”

According to the blunt testimony of Sen. Eli Bebout, R-Riverton, to Wyoming’s Joint Appropriations Committee: “Coal has paid billions of dollars to the state of Wyoming in taxes, and those taxes, quite frankly, members of the committee, will evaporate, go away, and how do we replace them?”

3. Troubles for trona

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Trona has been one of Wyoming’s most reliable, stable minerals. But the state’s leading trona operators have been put to the test this year.

Workers refine mined trona ore into soda ash or baking soda, among many other products. Soda ash is a critical ingredient in countless everyday products, such as glass, detergent and even electronics.

Sharp dips in demand, especially for glass, have forced some of Wyoming’s leading trona operators to cut their workforces and scale back production.

A full recovery for trona will also likely not happen until 2022, according to the CREG forecast.

4. Business as usual probably won’t work

Continuing to rely on the state’s traditional energy industries, as it has for several decades, likely won’t be realistic moving forward, according to state officials and lawmakers.

“A muted national and global economy will continue to challenge our state’s fundamental industries and exacerbate the structural deficits that we’ve talked about, and seen coming, for more than a decade,” Gov. Mark Gordon told lawmakers last week, adding, “Doing nothing will condemn us to a slow, painful decline, even as we sit and hope for that one more boom that Wyoming always seems to hope for.”

In other news...

COAL

Colstrip, the largest coal-fired power plant in the Northwest, no longer has a buyer for one of its units. Puget Sound Energy planned to pass on the generating capacity of unit 4 of the plant to NorthWestern Energy and Talen Montana. But the deal fell through last week, following opposition from the Washington Utilities and Transportation Commission and environmentalists. The latest development has left the fate of the coal plant in Montana unknown. A Puget Sound Energy spokeswoman told The Seattle Times the company wants to “get off coal as quickly as possible.”

OIL & GAS

In a move environmental groups considered a win, a federal court declared the Bureau of Land Management did not adequately consider how leasing over one million acres of public land to oil and gas companies throughout the West could affect the climate. A vast majority of the challenged leases fall within Wyoming. According to U.S. District Judge Rudolph Contreras, federal regulators fell short of complying with the National Environmental Policy Act when it leased public land in Wyoming, Colorado, Utah, New Mexico and Montana between September 2016 and March 2019.

WIND & SOLAR

A $600 million investment in Cedar Springs Wind Farm outside of Douglas and Glenrock by NextEra Energy Resources is in part responsible for Converse County’s booming sales tax revenues this summer, Cinthia Stimson reports for the Douglas Budget. The project has employed about 400 workers for construction. That includes about 50 former oil and gas workers hit hard by the downturn.

CONSERVATION & PUBLIC LAND

In a move decried by wildlife advocates but supported by many Wyoming lawmakers, the Trump administration Thursday lifted protections for gray wolves under the Endangered Species Act. The U.S. Fish and Wildlife Service, a branch of the Interior Department, will lift federal protections for the iconic animal in the lower 48 states. Instead, the federal government would defer to state and tribe management plans to sustain the critical species.

The federal government finalized a rule change this week giving public land regulators the ability to reduce royalty rates for non-energy mineral producers. The two changes will give mineral producers, like those mining trona in Wyoming, a discount if the mining incentivizes domestic production of soda ash, phosphate and other minerals.

Quote of the week

“The impacts of a Biden presidency immediately are probably far higher on the oil and gas industry through bans on leasing or technology than they are on the coal industry.”

— Rob Godby, University of Wyoming economist and associate dean of the Haub School of Environment and Natural Resources.

Follow the latest on Wyoming’s energy industry and the environment at @camillereports

Follow the latest on Wyoming's energy industry and the environment at @camillereports

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Energy and Natural Resources Reporter

Camille Erickson covers the state's energy industries. She received her master's degree at Northwestern University's Medill School of Journalism. Before moving to Casper in 2019, she reported on business and labor in Minneapolis, Chicago and Washington.

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