World energy disruptions push Wyo toward more volatility

An observer watches as gas operators demonstrate a flare in the Jonah field in 2005. (Dustin Bleizeffer/WyoFile)

By Dustin Bleizeffer, WyoFile

Russia’s attack on Ukraine — coupled with international calls to close off ties with the energy super-giant — threaten to push Wyoming’s fossil fuel-reliant economy toward even more volatile territory, according to state economists.

Although President Joe Biden’s executive order Tuesday banning imports of Russian coal, oil, natural gas and other petroleum products effectively closes off only 3% of U.S. crude imports, similar moves by the European Union and countries around the world will continue to shock an already tight world oil market.

That means Wyoming’s economy, which has been shifting its revenue reliance from coal to oil and natural gas, may be in for even more wild swings. That’s because state coffers are losing the stabilizing effect of steady revenue from coal, leaving Wyoming even more exposed to volatile world petroleum markets, according to Legislative Service Office Budget and Fiscal Manager Don Richards.

The increasing exposure to oil market “volatility can be to the upside as well as to the downside,” Richards said, adding that the potential upside for state revenues depends on whether producers in the state are nimble enough to capitalize on current market highs.

Despite the industry’s steady recovery from the 2020 pandemic shock, oil and gas operators are having difficulty finding enough workers in Wyoming at the same time supply chain constraints limit the availability of drill pipe and other raw materials, according to Petroleum Association of Wyoming Communications Director Ryan McConnaughey.

“There’s several things working against what would be considered a rapid response to” high market prices and meeting increasing demand, McConnaughey said. “And just from a business standpoint, a lot of the decisions on capital spending, specifically in Wyoming, were made months ago. So trying to reallocate and make changes based on unforeseen issues like the invasion of Ukraine makes it difficult.”

Wyoming oil and gas markets

Before Russia’s attack on Ukraine, Wyoming economists estimated oil prices at an average $60 per barrel for 2022 and $55 per barrel for 2023 and 2024, according to the most recent Consensus Revenue Estimating Group report.

The state could see an increase of $120 million in “total mineral revenue (through mineral severance taxes, federal mineral royalties, and property taxes)” if the annual average price for Wyoming crude exceeds current estimates by $10 per barrel, State of Wyoming Department of Administration & Information Wenlin Liu told WyoFile via email.

Prices for Wyoming crude closely follow West Texas Intermediate pricing — which topped $110 per barrel this past week. Wyoming, the seventh largest oil producer in the U.S., unleashed more than 7.2 million barrels in December, down about 1% from December 2020, according to the Wyoming Oil and Gas Conservation Commission.

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There were 15 rigs drilling in Wyoming last week compared to five this time last year. The number is still less than half the average 33 rigs in 2019, according to the oil and gas commission.

“Previously (before COVID), the exploration activity responded very quickly as prices increased,” Liu said. “However, this round is quite different, for both U.S. and Wyoming the drilling activity increase has been much slower despite the fast recovery in prices as producers continue to limit spending and investment.”

The slowdown in investment is also being forced upon the industry, McConnaughey said.

“Companies are seeing a financing crush because of decisions from the federal government and this whole idea of trying to defund capital for the oil and gas industry,” he said. “So that’s another thing that makes it really difficult for the industry to pivot.”

The historic oil market disruption is driving up prices for gasoline, diesel and other petrol fuel, sapping pocketbooks for Wyoming residents and even energy producers themselves. One significant factor in the increasing cost of Wyoming coal production is the rising price of diesel to power fleets of coal haul trucks and other earth-moving equipment, Wyoming Mining Association Executive Director Travis Deti testified before lawmakers earlier this month.

The U.S. became Europe’s largest supplier of liquified natural gas in 2021, but only about 10% of U.S. natural gas is exported. That means disruptions of Russian gas flowing to Europe may provide limited opportunities for U.S. producers, according to Liu. Wyoming is currently the ninth largest natural gas producer in the U.S.

“For the longer term, the U.S. has potential to increase [liquified natural gas] capacity and export more to Europe if they decided to reduce their energy dependency on Russia,” Liu said.

In the short term the world market disruptions are expected to buoy natural gas prices, Liu added. That should help Wyoming coal continue to compete with natural gas among U.S. electrical power producers — for now.

Federal energy policy

Gov. Mark Gordon and Wyoming’s congressional representatives have said although they support Biden’s order banning Russian fossil fuel imports, the administration needs to lift regulatory restrictions on domestic sources.

“It’s clear what the Russian invasion has done so far to Wyoming and U.S. gasoline prices,” Gordon said in a prepared statement Tuesday. “We know we must take extraordinary steps to rapidly ramp up production of oil and gas.”

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Earlier this month, Gordon joined 25 Republican governors to “restore America’s energy independence” by resuming federal oil and gas lease sales and streamlining federal permitting processes.

But the political calls to “unleash” domestic energy — particularly fossil fuels — are a disingenuous tactic to forego long overdue federal leasing and regulatory reforms for coal, oil and natural gas, according to the Center for Western Priorities, a Denver-based conservation advocacy organization.

“As we’ve seen time and again, the oil and gas industry hasn’t met a crisis that they weren’t willing to exploit for their own gain and profit,” CWP Executive Director Jennifer Rokala said on a call with reporters Wednesday. “The oil and gas industry has mounted a PR campaign in an attempt to loosen regulations and open more public lands for drilling while sitting on a massive stockpile of approved but unused drilling permits that are ready to go right now.”

McConnaughey of the Petroleum Association of Wyoming said what inhibits oil and gas operators from responding to spiking prices and demand today are supply-chain issues and the lack of experienced labor. However, increasing regulatory pressure, combined with shrinking access to capital presents a serious impediment to stabilizing or increasing domestic oil and gas production in the longer term.

“A vast majority of people in Wyoming believe that domestic production is vital to both national security and economic prosperity,” McConnaughey said. “Instead of looking at this invasion by Russia as an opportunity, I think it is more of a realization that those are just the facts — that being beholden to adversarial countries for energy is not the right thing to do.”

Boon to Wyoming renewables?

Several utilities and independent developers are considering a significant buildout of new wind energy in Wyoming, collectively poised to invest some $10 billion in the state.

But current world energy disruptions due to Russia’s attack on Ukraine may not be a significant boon for those ambitions, despite calls for greater U.S. energy independence, according to University of Wyoming energy economist Rob Godby.

“Wyoming should not see any significant changes in renewable adoption for the power sector due to the war in Ukraine,” Godby said. “I would expect little change from the current trajectory of power sector developments.”

 

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