A cold snap boosted state revenue by $175M
Improved pricing for coal and oil, and a rollercoaster of highs and lows in the natural gas market, contributed to a stronger-than-expected revenue picture for the state budget, according to a July “pacing report” by the Consensus Revenue Estimating Group.
As of April, revenue to the state’s primary budget accounts — the General Fund and the Budget Reserve Account — was on track to exceed a January forecast by $176.1 million, or 11%, according to the report.
“It’s almost entirely due to the natural gas price environment” in December and January, CREG co-chair Don Richards said.
The CREG, made up of representatives from several state offices and the University of Wyoming “is responsible for formulating projections for the main sources of income to the major accounts in the State.”
Extremely frigid temperatures across the nation forced homes and businesses to crank the heat during those two months, which sent the price of natural gas soaring. The average spot price for natural gas at the Opal Hub in western Wyoming surpassed $26 per thousand cubic feet for more than a month, Richards said. Since, the average spot price at Opal has settled to more normal levels — $3.98 per thousand cubic feet this week.
“Natural gas isn’t just a story,” Richards said. “It’s the whole story, at least when it comes to the actual revenue in excess of CREG’s forecast.
“To put an even finer point on that,” Richards continued, “the excess revenue [$176.1 million] was generated in December 2022 and January 2023 from higher-than-anticipated prices, primarily on natural gas production on the western side of the state.”
However, pricing for natural gas, oil and coal is expected to soften, resulting in calls for a cautious approach to spending in the upcoming legislative budget session.
While the report “may appear favorable on the surface,” Gov. Mark Gordon said in a prepared statement, “this examination of recent revenues also shows gathering storm clouds on the horizon that could signal a change in Wyoming’s future revenues.”
In addition to softening fossil fuel markets, Wyoming’s mineral extraction industries face an onslaught of “anti-fossil fuel policies” from the Biden administration, Gordon said. Plus, he added, the state must come up with $330 million to maintain existing government services initiated under the American Rescue Plan Act, a stimulus package passed by Congress during the pandemic.
“We should appreciate that Wyoming has been conservative with the windfalls that have come our way in recent years,” Gordon said. “We must continue to be vigilant in our ongoing spending.”
Gordon will present his proposed budget to the Wyoming Legislature in November.
Energy industry performance
Although the volume of coal extraction is in line with last year, a 4.3% bump in pricing so far this year has helped contribute to an overall rosier revenue picture, according to the CREG report.
The same was true for oil. Production increased 6.5% over fiscal year 2022 and averaged $80.79 per barrel — a 1.4% year-over-year average price increase. However, forecasters expect oil prices to weaken in coming months due to larger-than-average stockpiles and uncertainties in the global market.
While cold weather and extremely volatile natural gas prices inflated monthly utility bills for ratepayers, they were lucrative for producers and for state revenue, which funds a variety of public services, including K-12 education.
Overall natural gas volumes fell slightly compared to last year. However, the market-disrupting cold spells last winter resulted in temporary price spikes that ultimately boosted the average natural gas price by 58.1%.
“The actual revenue in excess of our [January] forecast is due to something that occurred seven months ago,” Richards said. “We’re no longer in that environment. We might be [this winter]. Who knows?”
Higher than average utility prices — for natural gas and electrical generation — also bumped sales and use taxes from the utility sector by 32.7%. Wind power construction and upgrade projects also boosted sales and use taxes, according to the report.