COLD WEATHER, GOOD NEWS: A cold winter could mean millions for New Mexico’s economy, which is highly sensitive to natural gas prices.
By Rob Nikolewski │ New Mexico Watchdog
SANTA FE, N.M. — It looks like Old Man Winter may blow in a very cold December across large portions of the U.S., which could lead to a spike in natural gas prices.
That could mean some good financial news for New Mexico. And if prices stay up for a number of months, it could mean very good news.
That’s because natural gas prices historically have had an outsized impact on the economy on the Land of Enchantment.
In fact, it’s estimated that just a 10-cent increase in the annual price of natural gas translates into a $9 million boost to the New Mexico general fund.
“It’s unbelievable how much this industry pumps into the state,” said Tom Clifford, the secretary of the New Mexico Department of Finance and Administration.
For example, earlier this year the price of natural gas jumped 86-cents between January and February when a deep freeze hit the East Coast, the Southeast and the Midwest. Clifford performed a quick estimate and guessed that the one-month spike led to about $9.9 million in state and local revenue.
“It’s an upside,” Clifford told New Mexico Watchdog. “We call it a positive risk. We don’t build into the (state’s economic) forecast to be cautious but it is a positive risk.”
Natural gas prices have generally been flat , hovering around $4 per MMBtu (British thermal units in millions). But Dan Steffens, the president of the Energy Prospectus Group, an investment firm specializing in oil and gas in Houston, said he expects to see a spike soon because some weather forecasters are calling for very cold weather in the eastern half of the U.S.
“Natural gas is the No. 1 source for home heating,” said Steffens, pointing out that last year’s “polar vortex” sent prices up to $6 per MMBtu.
Prices quickly came down but looking ahead, Steffens said there’s less storage capacity now, which could increase the chances for a price bump.
“If there’s an early start to winter this year, if there’s a cold December, then you’ll really see prices go up,” Steffens said.
Last week, weatherman Joe Bastardi predicted a cold snap in December for much of the eastern half of the country:
But for New Mexico taxpayers to really see a significant impact, the price of natural gas would need to go up and stay up.
“Sustained higher prices would habitually flow through” the state’s general fund, said Wally Drangmeister, director of communications for the New Mexico Oil and Gas Association. “You just have to see how high and how long.”
Clifford said the Department of Finance and Administration isn’t counting on a temporary spike in natural gas prices, just to be on the safe side.
“When you do the (state’s economic) forecast, you presume normal weather,” he said. “Our forecast for natural gas is basically status quo. It assumes a little bit of growth.”
New Mexico produces 1.2 trillion cubic feet of natural gas per year, with the vast majority of natural gas coming from the San Juan Basin, in the northwestern corner of the state.
It remains to be seen if the forecast for a cold December proves accurate and whether cold temperatures persist all winter. Steffens, for one, predicts that a spike would be short-lived. In addition, dealing with fluctuations in the commodities market always is fraught with uncertainty.
But New Mexico does seem to be in a good position to take advantage of a rise in natural gas prices, even if it’s just a temporary spike.
“In the short term,” Drangmeister said, “anything helps.”