Fossil Fuels Improve Income Prospects, But Add More Fiscal Volatility | New


Wyoming’s revenue outlook has improved by $ 845 million thanks to the rebound in the coal, oil and natural gas markets as lawmakers prepare for the next budget session in February. But there is a dose of bad news in the analysis of state revenues.

The savage shift from deficit projections during the 2020 pandemic shock to more stabilizing income forecasts today is a function of Wyoming’s disproportionate reliance on volatile fossil fuel markets, according to income forecasters from the U.S. State. This volatility of fossil fuels – beyond pandemic influences – will only increase as coal cedes its stabilizing influence on state revenues to oil and natural gas.

“The current forecast is heavily based on the rebound in oil and natural gas prices, which is leading to an increase [than coal] taxes and charges, ”according to the October report from the Consensus Revenue Estimating Group. “However, it can reasonably be expected that the volatility of the oil and natural gas markets will have a disproportionate impact on government revenue collection. Coal production is expected to continue its overall downward trend, despite the current temporary increase in production and prices. “

Revenues for fiscal year 2021 exceeded January estimates by $ 248.1 million, according to the October CREG report. The group also revised upward its revenue forecast for fiscal years 2022-2024 by $ 596.9 million. The total of $ 845.1 million is the amount of money that is expected to flow into the general fund and state budget reserve accounts during this period.

The revenue outlook to fund K-12 schools – which is largely tied to property taxes assessed on county-level mineral production – has also improved through 2024, by $ 368.3 million.

The rebound in revenues is due to the recovery in domestic demand for oil, natural gas and coal, said legislative services office finance and budget director Don Richards. In the long run, however, coal will continue to play a diminishing role in the state budget, meaning Wyoming can expect more intense income swings as the norm, a- he declared.

“Coal was a very stable source of income compared to oil and gas,” said Richards, who is also co-chairman of CREG. “The volatility of natural gas prices and the volatility of oil prices is much more dramatic, and Wyoming is becoming increasingly dependent on oil and gas due to the structural decline of coal.

“As a result,” Richards continued, “our total income portfolio becomes more volatile, not less.”

An example of the difference in volatility between oil and coal, Richards said, is the price of commodities. The price of Wyoming coal – which is tied by US utility markets – fluctuated between around $ 10 and $ 13 per tonne during the pandemic shock and recovery, while the price of oil – subject to global markets and to geopolitics – went from less than $ 0 per barrel to $ 80 per barrel.

Industry and state officials are also concerned about the ability to maintain robust oil and gas production in Wyoming due to increased federal regulatory oversight.

For now, Powder River Basin coal producers are capitalizing on a recovering national economy that is driving demand for electricity in the United States – Wyoming’s only coal market. Electricity demand so far this year has increased 22% from 2020 levels, according to the Energy Information Administration. However, long-term projections still warn of a steadily declining market for Wyoming coal.

“The downside is that we went from 450 million tonnes [of annual coal production in 2008] up to 200, ”House Income Committee Chairman Steve Harshman (R-Casper) told WyoFile in October. “This will continue because of the decommissioning of the coal plants, and we are selling thermal coal. We’re not going to make up for it by building car bodies or anything like that.

In total, more than 65% of the upward revision in state revenues is “directly attributable to fossil fuels,” Richards said. Only Alaska and North Dakota are more dependent on fossil fuels, he said.

The CREG revenue review represents a dramatic turnaround from 2020, when forecasters forecast a budget deficit of $ 1.5 billion for the 2021-2022 biennium. Around the same time last year, Governor Mark Gordon had already instituted 10% budget cuts for most state agencies and suggested cutting 380 state posts.

But improving markets for Wyoming’s fossil fuel industries, combined with President Joe Biden’s American Rescue Plan Act pledge of federal funds, helped state lawmakers during the 2021 regular session. to further reduce budgets.

Despite the state’s continued “structural” vulnerability to coal decline, Harshman said he hoped lawmakers would steer clear of what he saw as a panicked budget cut during the economic shock of the pandemic. .

“Who is going to cut more? Harshman said. “I want to add things to mental health, addiction. We have [among] the highest suicide rates in the world.

Conversely, it is too early to talk about raising taxes, Harshman said. “What we need to do in Wyoming is smooth out this thing a little bit, and we need to modernize our sales tax.”

CREG, which the Wyoming legislature relies on for data and revenue analysis to help develop a budget, will further refine its forecast ahead of the February budget session of the legislature. Governor Gordon will submit his budget proposal to the Legislature on Monday.

WyoFile is an independent, non-profit news organization focused on the people, places, and politics of Wyoming.


Comments are closed.