Monday, November 26, 2012

Low Natural Gas Prices Hurting Coal Helping Electricity Bills

Surging natural-gas production from shale rock formations has caused a glut in U.S. natural-gas production, which has pushed prices lower for both gas and coal.  Coal and natural gas compete as fuels to produce electricity. This has lowered energy costs for homes and businesses, given a crucial competitive advantage to manufacturers that use natural gas as a raw material, and created jobs in other industries, like steelmaking, trucking and construction that make products and supply services to drillers. But lower prices for coal and gas have resulted in lower revenues for some energy companies, prompting them to cut back on gas drilling and coal mining.

In a handful of states, while consumers and many businesses are benefitting, some local and state government tax collections are being impacted. The budgetary squeeze is particularly acute in West Virginia, where rich reserves of coal and natural gas have long been a key source of revenue.
In September, Arch Coal Inc.  idled a local coal mine here that employed 50, and natural-gas producer Chesapeake Energy Corp.  laid off 115 workers at a field office here earlier this month, relocating many of them to Ohio where its drilling is more profitable and where jobs and revenues continue to grow.

Pennsylvania officials announced last month that a fee enacted earlier this year on shale-drilling has so far resulted in $204 million for local communities and counties.  Consumers are also seeing more money in their pockets. Over the past three years, electricity bills from the Pittsburgh region's four biggest utilities fell by 30% to 41% mostly as a result of lower natural-gas prices, according to the Pennsylvania Public Utility Commission. Average monthly home-heating bills were cut by $60 to $100. Cheap natural gas has prompted utility companies to burn more of it and less coal, which has eroded coal prices.

Even as the country gained thousands of oil and gas jobs in the past year, the coal sector lost thousands of jobs.

In Arkansas, severance-tax revenue from natural-gas production declined 33% through October, compared with the same period a year ago.

Earlier this year, Wyoming Gov. Matt Meade instructed state agencies to trim their budgets for next year by 8%, as a result of the impact of low natural-gas prices. Since then, the output of coal—another big revenue generator for the state—also has sharply slowed.  State officials expect coal production will be 9% less than they had estimated, resulting in an additional hit of tens of millions of dollars.

In West Virginia, officials have been bracing for a sharp drop in coal-related severance-tax revenue this year, as a result of lower production and prices. But some have been surprised that gas-related revenue has also taken a hit as a result of low prices. (WSJ, 11/25/2012)

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