Wyoming is facing a potential budget shortfall exceeding $100 million due to rapidly declining natural gas prices in a state highly dependent upon the shale boom and its related economic drivers, Gov. Matt Mead said Tuesday in Cheyenne.
Mead’s initial budget proposal issued late last year was based on an assumption of $4/Mcf gas prices, and his budget advisers have reduced that to $3.25/Mcf, but with sub-$3 prices abounding, officials are concerned the revised assumption may prove to be inadequate. Mead said the drop to the $3.25/Mcf estimate reduced his budget’s estimated revenues by $113 million.
Wyoming’s state legislature meets this year in a session primarily devoted to the budget and other issues limited to redistricting and worker safety, said Mead, who is slated to outline his revised budget proposal on Monday as part of his state-of-the-state address.
“In December we based my budget’s revenue assumptions that were tied to $4 gas, but my advisers came back and said $3.25 would be more realistic,” Mead said. “That 75-cent reduction is the equivalent of the $113 million we had to make up. So the joint appropriations committee and my office worked to make up that lost $113 million. That’s where we are now.”
Mead said he expects that during the upcoming state legislative session there will be other budget changes, and he told reporters a sub-$3 assumption may be the more realistic projection for gas prices. Mead said he is “not all that pleased” because of numerous budget cuts he has been forced to make.
Nevertheless, the governor said one of the points he plans to emphasize in his state-of-the-state address is that “Wyoming is in a very good place. I talked to other governors around the country and see the issues they are facing, and I realize we are strong in many ways.”
Mead acknowledged that current gas prices of $2.45/Mcf suggest that even the lowered budget assumption is still too high. “I do have a concern that at this point the [$3.25/Mcf] may be a little bit too optimistic. And that is not just based on today’s prices.”
Mead said that with storage at near-record levels and drilling/production technology greatly inflating domestic gas supplies, there are shale formations that no one had heard about a few years ago. “So we are going to continue to produce a lot of natural gas,” he said. “Twenty-five percent of the gas produced in the nation comes from producing oil, so the amount of gas we have is going to continue to build.
“It is a very good question asking about whether $3.25/Mcf is the right number. We depend on forecasts, and that’s why we in Wyoming look for projects that add value, whether it is a wind turbine or a natural gas-fired turbine, a gas-fired vehicle or natural gas-to-liquids. I think we need to be at the forefront of all of those. It is good for Wyoming, and frankly good for the United States, to find more ways to use natural gas.”
With the uncertainty surrounding plummeting gas prices, Mead said his administration is having discussions with the state joint appropriations committee, and the legislators have decided to put aside $150 million of contingency funds to address further erosion of gas prices. “If things continue to deteriorate in terms of gas prices, we’ll at least have a buffer,” he said.
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