From 2005 through 2011 the share of natural gas in the Texas power generation market declined while the use of out-of-state coal increased, causing a $7.7 billion economic loss to the Lone Star State, according to a new study. Texas is, after all, the country’s top producing state for natural gas, the study authors said, and the decline of its use in Texas runs counter to national trends.
The study by Michael J. Economides, a chemical and biomolecular professor at the University of Houston; and petroleum engineering consultant Philip E. Lewis compares the direct and value-added economic impacts from the three dominant power generation energy sources in Texas: coal, natural gas and wind. Over the past two decades in the United States, natural gas has increasingly become the preferred energy source for power generation. Starting in 2005, however, Texas’ reliance on natural gas began to decrease, as national use continued to rise, the researchers found.
“Over this study period, Texas increased its reliance on out-of-state coal as a substitute for Texas natural gas. This does little for our economic development and job creation,” Economides said. “A failure to take full advantage of Texas natural gas in power generation is a substantial missed opportunity for our state because of how tightly integrated natural gas development and related industries are with the state’s economy,” Economides said. “Texans ignore the benefits of this abundant local resource at their economic and environmental peril. Embracing greater use of natural gas is key to Texas long-term growth, prosperity and clean air.”
Since virtually all the natural gas used for power generation in Texas is produced in the state, this divergence represents a loss of more than $7.7 billion to the state since 2005, the researchers said. In 2011 alone $2.5 billion was lost in potential revenue, including leasehold improvements, production royalties, severance taxes to state and local governments, sales taxes and local property taxes, as well as $530 million in lost wages. “The state also forfeited 8,600 jobs that would have otherwise been created by the Texas natural gas industry,” according to the study, which was commissioned by the gas industry-funded America’s Natural Gas Alliance.
Texas’ natural gas companies pay five times more in state and local taxes and royalties on a per-job basis than the average company in other industries, according to the study. About 75% of the independent school districts in Texas each receive an average of $1.35 million per year in ad valorem revenues from the production of natural gas.
Beyond Texas, Bentek Energy LLC recently said said it expects more gas-fired power generating capacity will act as a sponge to soak up some of the market’s excess natural gas (see Daily GPI, March 2). “Some 12.5 GW [gigawatts] of gas-fired electric power generation is under construction with in-service dates ranging from between May 1, 2012 and Dec. 31, 2013,” the Evergreen, CO-based analytics firm said in a note. “This new gas-fired capacity equals gas demand estimated by Bentek at more than 1.1 Bcf/d.”
The researchers said the “time is ripe” for a transition to a greater reliance on gas for power generation in Texas, and they cited a recent announcement by San Antonio’s CPS Energy, the country’s largest municipally owned natural gas and power utility, that it would replace some of its coal-fired generating capacity with a gas-fired plant (see Daily GPI, March 13).
The study, titled “Texas Natural Gas: Fuel for Growth,” did not consider nuclear power because of “its very long lead times for new power generation, prohibitive capital requirements and regulatory uncertainties.”
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