Archive for Tuesday, January 26, 2016

Kansas oil and gas industries suffer while wind industry prospers

January 26, 2016

TOPEKA — Falling energy prices and sluggish demand in the global market have taken their toll on the Kansas oil and gas industry, while the state's wind energy industry has continued to see steady growth.

Those were the messages that industry officials delivered to the House Energy and Environment Committee Monday as lawmakers tried to get a handle on how those trends will affect the state's economy and revenues flowing into state coffers.

Ed Cross, president of the Kansas Independent Oil and Gas Association, said that industry was hit hard in 2015 by declining prices, which led to a large number of layoffs among drilling and production companies, and big declines for the state in tax revenues that come from energy production.

Oil production in Kansas fell by 5.5 percent during 2015, he said, the first time there has been a year-to-year drop in production since 2009.

"Severance taxes are down 58 percent from 2014. Ad valorem (property) taxes are down 43 percent," he said.

While those are not significant revenue sources for the state of Kansas, they are important to counties and school districts in oil-producing areas.

What is more significant for the state is the loss of jobs and incomes that are tied to the oil and gas industry. According to the Kansas Department of Labor, the mining industry, which includes oil an gas production, shed roughly 1,000 jobs in 2015.

Driving those numbers are global economic and political influences far beyond the control of Kansans, he said, including a deliberate strategy by OPEC nations to drive down prices and discourage production elsewhere; sluggish economic growth in China, Japan and the European Union; and a strong U.S. dollar that has driven down the cost of foreign imports.

"The ripple effects are everywhere," he said. "If you think about the role of oil in your life, it's not only the primary source of many of our fuels, but it's also critical in chemicals, lubricants, fibers, pharmaceuticals, plastics and many other items."

"And the industry also supports nationwide about 1.3 million manufacturing jobs," he said. "And you think about the law, accounting and the engineering firms that serve the industry, the pipe and drilling equipment and other manufacturing goods that it requires, the large payrolls and their effects on consumer spending, you begin to get the picture of the enormity of the oil and gas industry."

But while the oil and gas industry has been struggling, the wind energy industry has continued to pick up strength.

Kimberly Svaty, lobbyist for the Wind Coalition which represents both large and small wind energy producers, said wind production in Kansas is expected to grow more than 37 percent this year, to more than 4,540 megawatts — more than the total capacity of the Wolf Creek nuclear power plant.

Much of that was due to a law enacted in 2009 that required public utilities to produce at least 20 percent of their electricity from wind or other renewable sources by 2020. But lawmakers repealed that law last year, replacing it with a voluntary "goal" instead, even though the state had already surpassed the 20 percent mark five years ahead of time.

What the industry needs now to sustain that growth, Svaty said, is "policy stability" at both the state and federal level so that financial investors who put up the money for wind farms and transmission lines have some certainty about how they will be taxed and regulated in the years to come.

She noted that Congress, after several years of sending mixed signals recently reauthorized a production tax credit for wind energy for the next five years.

"That, I think, is very important for policy stability for the industry," she said. "Certainly I know the developers were very focused on that for a long time."

Some lawmakers noted, however, that much of the wind energy produced in Kansas is exported to other states. Rep. Randy Powell, R-Olathe, asked whether Kansas will still get credit for that under the federal government's Clean Power Plan, which requires states to shift more of their electricity production to renewable resources.

Svaty, however, said that Kansas is still developing its specific plan for complying with the Clean Power Plan and that the EPA will have the final say in how exported power is counted.

"There's going to be a lot of push and pull, because certainly the entities that are purchasing the wind are going to want to capture it for themselves, but we want to capture it for our state benefit," she said. "I know the state will make a very good case for wanting to capture all of our wind benefits."

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