New pipeline is best news at conference

By Brodie Farquhar,Contributing Editor, Wyoming Energy News

CASPER – There was good news and bad news for some 200 business leaders from central Wyoming assembled last week at the Ramkota Hotel in Casper, for the Central Wyoming Economic Forecast.

The good news came from Rob Godby, associate professor and chairman of the University of Wyoming Department of Economics and Finance.

“There are several dire predictions that didn’t come true,” said Godby. “First of all, it didn’t lead to the collapse of the international financial system. Secondly, it won’t last for a decade – we’re already in recovery. Third, the dollar didn’t collapse.”

Still, there was plenty of bad news from Godby and other speakers, including the news that any job recovery in Wyoming, or the rest of the country, will be agonizingly slow.

YEAR TO YEAR

A perspective on how much has changed in Wyoming came from Buck McVeigh, administrator of the Economic Analysis Division for the State of Wyoming, especially from 2008 to 2009.

In 2008, driven by the energy boom, Wyoming’s population hit a new high of 532,668 people – up 1.8 percent from the year before. 2008 was the year when job growth expanded by 3.4 percent, said McVeigh, the highest rate in the country. That heady growth was spurred by a 6.6 percent growth rate in the mining and construction sectors.

Personal income was up 4 percent while retail sales heated up by 10 percent, said McVeigh.

The energy boom, particularly explosive growth in natural gas development, saw state revenues surge higher than forecast, and with a half-a-billion carryover to boot, he said.

All that growth triggered statewide inflation, said McVeigh, at 7.9 percent – well above the national rate of 5 percent (2Q08).

The hot housing market cooled down a bit in 2008, he said, but prices still rose through 2008.

What a difference a year makes.

McVeigh noted that Wyoming population grew another 2.1 percent in 2009, spurred by immigrants fleeing hard-hit economies around the nation. But energy and other job growth quickly reversed in 2009, ending the year at -3.5 percent, McVeigh said.

That triggered a cascade of more bad news: a 3.0 percent decline in personal income growth, a 15 percent drop in retail sales and a 30 percent crash in auto sales.

Statewide, inflation sank to zero, he said, “The lowest price change since 1987.”

Housing prices fell 4.0 percent, he added, while construction permits fell 35 percent and real estate sales down 10 percent.

BEST NEWS

The best news in McVeigh’s presentation was that while overall demand for natural gas is down, at least Wyoming can now get national prices for its commodity. In the past, the natural gas pipeline capacity was so limited for Wyoming natural gas, that producers had to accept lower prices – just to move their product.

McVeigh showed a graph that noted this “differential” between Henry Hub prices and the lower prices that were once so common at the Opal Hub (which reflected Wyoming’s limited access to pipeline capacity).

That all changed, said McVeigh, in November 2009, when the Rockies Express (REX) pipeline was opened. The new, dramatically expanded pipeline capacity meant that Wyoming producers could get nationally competitive prices for their gas, virtually eliminating the “differential.” (REX is a 1,679-mile natural gas pipeline system from Rio Blanco County, Colorado, to Monroe County, Ohio.)

ENERGY VIEWS

Neil “Mick” McMurry , CEO of Nerd Gas Co., led the development of the giant Jonah Field in southern Wyoming, so when he talks, Wyoming audiences tend to listen.

McMurry said he’s been a Wyoming business owner for 40 years, and has been blessed with great employees and partners.

“No one intends to drill a dry hole, but when it happens, we accept it and learn from it,” he said.

Like McVeigh, McMurry also noted the greater pipeline capacity in and around the state, which has led to better prices for Wyoming-bred  gas and better revenues for producers and government alike.

“We’re having a very cold winter in the U.S. and the world. Without it, we’d be looking at $2 gas,” he said. (Henry Hub spot was $4.71 today.)

Crude oil has rebounded to over $70 a barrel, while uranium prices are stable and high enough to encourage development work in Wyoming, McMurry said.

“It all comes down to jobs, jobs, jobs,” said McMurry, who voiced concern that with mining and construction taking major job losses (-17.4 percent and -14.8 percent from 3Q08 to 3Q09), the only sectors that grew were education/health services and government jobs.

“That can’t continue,” he said. “We’re going the wrong way.”

The Wyoming economy and tax revenues are very sensitive to energy price changes, said McMurry. That places Wyoming in a tough spot, because “environmentalists, the Obama Administration and the Interior Department have declared war on Wyoming energy,” he said.

Leasing auctions are being delayed, he said, while paid-for leases aren’t released for development.

McMurry also warned that Congress and the Environmental Protection Agency aim “to prohibit fracking,” the practice of forcing water, sand and chemicals into shale and sandstone formations, in order to widen fractures and allow natural gas to emerge. McMurry said natural gas development would be knocked down to 10 percent of today’s production without fracking.

McMurry also worried aloud that the sage-grouse would be listed as threatened or endangered under the Endangered Species Act this week – something that could severely limit energy development, ranching and recreation in Wyoming.

“Sage-grouse don’t pay taxes or provide jobs,” he said.

He also expressed doubts that carbon sequestration or renewable energy would ever work out as planned. McMurry said the Rock Springs Uplift, touted as an ideal formation for holding CO2 from coal-burning power plants, would ultimately force out six billion barrels of salt water, which would need to be treated. He doubted that wind and solar would ever surpass fossil fuels.

McMurry recommended that the government  provide more incentives to small businesses, that the U.S. should streamline the construction of  nuclear plants and shift transportation away from fossil fuels to electrical power.

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