By Ike Fredregill, Cowboy State Daily
EDITOR’S NOTE: This is the first of a two stories detailing the struggles of Wyoming’s energy sector in a post-pandemic economy.
Wyoming’s coal, oil and natural gas producers are facing significant losses following the COVID-19 pandemic, a University of Wyoming economist said.
Before the world turned upside down, Rob Godby, director of the Energy Economics and Public Policies Center at the University of Wyoming, helped produce several scenarios for Gov. Mark Gordon detailing the state’s potential energy revenues .
Legislators were taken aback by the dismal scenarios presented.
Six months later, the scenarios’ worst-case projections look optimistic compared to post-pandemic realities.
“COVID-19 caused a decline in coal that was more than double what we expected,” Godby said. “2019 was the worst year for coal in the last 20. We produced 15% less coal in 2019 than in 2018.”
Since March, the state has produced about 40% less coal than in 2019, he explained.
“Prior to Covid-19, the market was flooded with cheap natural gas,” Godby said.
Oil drilling operations in the Permian Basin in Texas and New Mexico were pulling up natural gas as a free byproduct of oil production and selling it on the open market, which made it difficult for natural gas producers in Wyoming to compete because they dealt solely in natural gas.
In May, Ultra Petroleum Corporation, one of Wyoming’s largest natural gas producers, filed for bankruptcy for a second time in four years.
While some companies continue to pump out natural gas, Godby said the search for new wells is grinding to a halt.
“These companies were not drilling any more, so natural declines were going to happen,” Godby said, explaining natural gas production was previously predicted to decline by 25%.
“COVID-19 hasn’t really changed the rate of decline of natural gas. What has changed is the potential outlook a year or two from now.”
With most of the nation’s natural gas coming from oil drilling operations, the collapse of oil demand worldwide makes it difficult to predict how natural gas producers — especially those who produce only natural gas and not oil — might respond.
“With less natural gas coming on the market as a result of decreased oil production, there is a possibility for natural gas to rebound,” Godby said. “As early as the start of next year, we may see prices rebound.”
There is uncertainty, however, about whether Wyoming’s producers will be able to weather the downturn long enough to capitalize on increased natural gas demand.
“The firms in the natural gas sector were already in trouble,” Godby said. “But the question is ‘Will they fail completely in the current situation?’”