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All eyes on energy revenue

All eyes on energy revenue

Jun 20, 2012 - By Steve Peck, Publisher

Wyoming industrial history will record 2011 and 2012 as a period when two of the state's most-powerful economic engines -- the production of coal and natural gas -- both fell on their hardest times of the new century.

Those stories, and the state energy industry's steps to deal with them, are prevalent in today's 57th annual Ranger Mining and Energy Edition.

The edition is published in conjunction with the annual convention of the Wyoming Mining Association. This year's gathering is at the Jackson Lake Lodge.

Decreasing demand and falling prices, along with a changing regulatory climate, have brought a second year of uncertainty to the gas fields and coal mines after a decade of often mind-boggling performance that made Wyoming one of the richest and financially solvent states in the nation.

Natural gas prices that once topped $7 per thousand cubic feet have hovered well below $2 for many months, bringing down the astounding tax revenues enjoyed by the state and several gas-producing counties with them.

The downturn isn't limited to the gas industry in its effects. Plunging tax receipts have handcuffed state and local governments statewide. Gov. Matt Mead has instructed all state agencies to prepare to cut budgets as much as 8 percent in the next biennium, and officials from city halls to school boardrooms are juggling decisions about facilities, programs and personnel as the cuts loom ever closer.

An unseasonably warm winter across much of the nation didn't help the market, as thermostats stayed down in homes and businesses heated by gas.

But natural gas demand in some areas is up, and that's not good news for Wyoming coal. With new air emissions regulations either in place or proposed, industrial users of coal have backpedaled, converting power plants, factories and mills from coal-based electricity to gas, taking advantage both of gas's more attractive emissions profile and the big price drop.

In the coal mines of Wyoming, biggest in the world, manager after manager described production losses of 10 percent or more during the past year. The remaining tonnage is still huge, and Wyoming coal's lower sulfur content gives it an advantage over higher sulfur coal from eastern mines.

But the impact is significant. Power plants and factories that run on coal report huge inventories of the mineral on site and are asking for deferrals on delivery. Wyoming coal has withstood the layoffs and larger production cuts that have plagued conventional coal mines in Pennsylvania, Kentucky and West Virginia, and the state's vast reserves accessible through more efficient open-pit mining, are buffering the impact to an extent. No state comes close to Wyoming in production of coal.

Coal leaders worry that if proposed emission regulations drafted under the Obama administration were to take full effect, new power plants would find coal to be prohibitive and opt for gas or nuclear generation instead.

Many coal-fired plants continue in full operation, and will remain so for years to come, so no one is predicting the demise of coal. But industry analysts note that the share of the nation's electricity provided by coal has dropped from a solid 50 percent in 2008 to about 38 percent this year.

Natural gas, cheaper at the moment, has experienced a corresponding share increase of about 10 percent, with alternative sources filling in about 2 percent of the difference. A cold winter or two could restore the previous balance partially, but Wyoming coal is looking for new markets just in case.

Gov. Matt Mead recently returned from a trip to China, where the prospect for Wyoming coal exports to that giant nation were a key discussion topic as China's industrial expansion roars ahead.

Wyoming oil production is reported to be at a several-year high. Often criticized by industry, the Obama administration has, in response to unending instability in the oil-exporting regions of the Middle East, approved a significant uptick in oil production in the U.S., which is pumping more oil than at any time in a generation.

Oil prices are down from their historic highs, but hardly depressed. Wyoming, the eighth-biggest oil producer in the nation, is contributing, and Wyoming exploration and service companies are taking advantage of the opportunities afforded by the spectacular oil and gas boom in North Dakota.

In the trona patch, miners experienced a good year as the market rebounds from a mid-decade slump, and the state's congressional delegation wants to keep it that way. U.S. Rep. Cynthia Lummis has pushed a bill through in Congress all year that would revert the royalty rate aid by trona producers to 2 percent rather than the 6 percent rate imposed late last year. Support for the bill has been growing, and Lummis says it will protect Wyoming's natural soda ash competitive against the synthetic version produced by the trainload in China.

U.S. Sens. Mike Enzi and John Barrasso say they'll help carry the bill in the Senate when the time comes.

Wyoming's "miracle mud," bentonite, is booming in 2012, thanks in big part to the oil production increases nationwide. Nothing lubricates moving parts on a drilling rig like bentonite-based drilling fluid, and the mines in the Big Horn Basin and northeast were asked to produce all the bentonite the drillers could handle -- which in 2012 is a lot. The state ranks No. 1 in bentonite production as well.

Uranium, always seemingly teetering on the edge of a revival in the state, finally has moved decidedly in that direction. A new mine, just the second in the state since the industry collapse of the 1980s, went on line last year, and another is arriving in 2012.

Moreover, with the per-pound price staying healthy even after the Fukushima nuclear plant crisis in Japan, Wyoming uranium miners are bullish enough to press ahead with plans for another producing mine next year, and perhaps two more by 2014.

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