Texas Lost $7.7 Billion From Declining Natural Gas Use

Special to Pipeline & Gas Journal
May 2012, Vol. 239 No. 5

Texas is the nation’s top producer of natural gas – an industry that provides nearly 1.3 million jobs and $60 billion in labor income to our economy annually. However, Texas’ use of natural gas has been decreasing – slowly but steadily – displaced by out-of-state coal.

Given how tightly integrated natural gas producing and natural gas consuming industries are to the Texas economy, this decrease in natural gas use translates to significant losses of revenue for the state across both private and public sectors, according to a newly released study by Dr. Michael J. Economides, a chemical and biomolecular professor at the University of Houston, and petroleum engineering consultant Philip E. Lewis.

The analysis was commissioned by America’s Natural Gas Alliance (ANGA).
It compares the direct and value-added economic impacts from the three dominant power generation energy sources in Texas: coal, natural gas and wind. Over the past two decades in the U.S., natural gas has increasingly become the preferred energy source for power generation. Starting in 2005, however, Texas’ reliance on natural gas began to decrease, as national use continued to rise.

Since virtually all the natural gas used for electric generation in Texas is produced in-state, this divergence represents a loss of more than $7.7 billion to the state since 2005. For 2011 alone it represents $2.5 billion in lost potential revenue, including leasehold improvements, production royalties, severance taxes to state and local governments, sales taxes, and local property taxes.

The loss can be expected to grow larger each year unless current trends are reversed. Wages lost in 2011 were $530 million and $1.65 billion over the period 2005-2011. Most importantly, 8,600 long-term Texas jobs in the natural gas industry have been forfeited to coal imported from out-of-state.

Bucking National Trend
The decreased reliance on natural gas for Texas electric power generation is counter to national trends. Texas and the United States saw a moderate increase in natural gas-fueled power generation during 1990-2005. Since then, the national trend has continued, while the state’s trend began to diverge (see Figure 1 and Figure 2).

Since 2005, Texas has seen flat to declining market share for natural gas-fueled power generation. Figure 2 also shows the relationship between the national trend and the Texas fuel mix. The figure shows a substantial reduction (over 1 Tcf as indicated by Table 1) in the volume of Texas natural gas used for electric power generation compared to what would have been consumed had Texas followed the national trend.

Table 1 and Table 2, respectively, show the direct and total impacts of the natural gas loss to Texas and the divergence between actual natural gas used versus the national trend, based on several conservative estimates.

The majority of coal used in Texas for power generation is imported from other states. While the mining of coal certainly provides economic development in those states, importing it as a substitute for Texas natural gas does little for economic development or job creation in Texas.

As a result, Texas employment will continue to suffer to the benefit of coal-exporting states if it continues on its current divergent trend. This increasing reliance on out-of-state coal as a substitute for Texas natural gas rose from 54 to 64% over the period 2005 to 2010.