Western Slope awaits lift from energy rebound

The state’s economy in general continues to show signs of rebounding, but that doesn’t mean the Western Slope will see a recovery anytime soon, legislative economists said Monday.

Although Colorado has seen an uptick in retail sales, job growth and personal income, the energy industry continues to weigh down recovery of the western part of the state, chief economist Natalie Mullis told lawmakers.

One bright note for the Western Slope was that the number of natural gas wells continued to increase over the past year. At the same time, coal mining is seeing a resurgence, with new markets opening up elsewhere in the world.

As a result, Mullis said, the revenue the state receives from severance taxes, which are based on production, is expected to rise over the next two fiscal years. Jobs in the energy industry should start to return with that increase, if only slowly.

“We are expecting an increase in both mining and logging employment,” Mullis said, with broad reference to “mining” as any industry that extracts a resource from the ground — including natural gas.

The increase in mining jobs, she said, “is predominately because of natural gas.

“New wells in Colorado are increasing faster than in Wyoming and New Mexico.”

Legislative Council economist Jason Schrock said severance tax collections are expected to be about $176.7 million for the current fiscal year, which ends June 30, and about $193.2 million next year. For the 2009-2010 fiscal year, the state collected about $48.2 million in severance taxes, an 85 percent drop from 2008–09.

Schrock said the state should continue to see a steady rise in severance tax revenue over the next several years as the nation turns to more natural gas.

About 20 percent of the nation’s electricity is generated from natural gas, he said. That is expected to double over the next two decades as more coal-fire plants are converted to burn natural gas, Schrock said. Earlier this year, the Legislature approved a bill requiring the conversion of several aging coal plants along the Front Range to natural gas, a measure the coal industry continues to oppose.

Even with growing interest in cleaner-burning natural gas, Schrock said Colorado’s coal industry is growing, pointing to the reopening of a southern Colorado mine that has contracts to ship up to 3 million tons of coal to markets in energy-hungry Europe and Asia. That production would boost Colorado’s coal exports by about 10 percent, he said.

Schrock and Mullis said the price of natural gas remains well below pre-recession levels, but will rise from the current $4.30 per thousand cubic feet this year to about $4.55 next year. That increase and the projected opening of the long-awaited Ruby natural gas pipeline is spurring producers to increase the number of active wells, they said.

As of last week, the state had 66 wells operating in the state, 25 more than it did a year ago but still below pre-recession levels. The bulk of those wells are in Weld and Garfield counties,

“This pipeline will create an additional 1.5 billion cubic feet per day of natural gas takeaway capacity from the Rockies region and provide a direct route to attractive Western markets, most notably California and its high natural gas demand,” Schrock said in his forecast. “The pipeline, coupled with improved technology that has reduced production costs, will make production more profitable for producers in the Piceance Basin.”

Economists also said the state should see a modest hike in revenue from federal mineral lease payments, and that increase should grow substantially over the next three years. For 2009-2010, the state received about $122.5 million in lease payments, a 46 percent drop from the 2008–09 fiscal year. Revenue is expected to rise to about $123.9 million in the current fiscal year, and to $134 million by 2011–12.

Mullis and economists in the governor’s Office of State Planning and Budgeting said that a slight increase in jobs and a bigger increase in consumer confidence will boost state revenue over the next year, but not by much. Those two economic indicators, along with a projected 12.3 percent increase in individual income, could mean the state won’t have to trim next year’s budget any more than the already predicted $1 billion, they said.

“We’re losing a lot of one-time sources of money, mostly from the federal stimulus law that are being used to pay for general fund programs,” Mullis told lawmakers. “We know how much money we have. We don’t know what programs you want to fund and at what level you want to fund them. So the size of the shortfall actually will depend on what you decide.”


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