STATE OF MIND AND MINES

It is hard to argue that the economy has not improved in the past few years, and it is even harder to argue that it is not continuing to struggle on many fronts. Yet, through it all, Wyoming’s economy has remained solid, even strong when compared to most other areas of the country.

For those in the construction industry, its hard to believe that Wyoming’s economy has remained strong. Between the first quarters of 2008 and 2009, Wyoming construction lost 1630 jobs, down 6.3%. The industry lost another 2970 jobs, down 13.3% from 2009-10. And From the first quarter of 2010 thru the first quarter 2013, the industry only gained 1560 jobs, about 1/3 of what was lost. Source: Wyoming Administration and Information Department, Economic Analysis Division, Economic Summaries: First Quarters 2008 through 2013.

Before the great crash, 4,584 residential building permits were authorized in Wyoming. That number has steadily fallen to a new low of 2,110 residential permits authorized in 2012. Source: Wyoming Administration and Information Department, Economic Analysis Division, Annual Residential Housing Units Authorized by Building Permits For Wyoming and Counties.

However, for the first time in a long time, the industry is optimistic, and with good reason. Many of the state’s construction professionals have a full slate, and while that slate is likely to get even fuller, we will not see anything like the most recent boom anytime soon.

On the public construction side of the industry, there will be a short term, “mini-boom” as the Wyoming School Facilities Department unleashes nearly $1 billion in school construction that has been eagerly awaited for the past couple of years.

On the residential side, Wyoming home prices are gaining ground, but the home market in the state may be weakening when compared to 2012. Home prices grew in the first quarter of 2013, at a sluggish rate of 1.8%, lower even than the national average. Source: Wyoming Administration and Information Department, Economic Analysis Division, Economic Summary: 1Q2013

Industrial construction is currently being fueled by oil production in the state, while a boom to match North Dakota’s is no longer being predicted, oil production is helping to keep industrial construction steady as other fronts decline.

Our industry is dependent on a number of factors, how-ever we are all highly dependent on the mineral extraction industries to fund the coffers for public construction, create work for industrial construction, and the need for residential construction.

Consensus Revenue Estimating Group (CREG) reports are used by state agencies and the Legislature to estimate revenues to the state for the purpose of setting the state government’s budget. The current CREG report, published in the first quarter of 2013, as well as historical CREG reports were utilized to compile the following information on oil, natural gas, coal and trona production, the primary drivers for the mineral industry in Wyoming.

The biggest concern in Wyoming is the future of coal, the lion’s share of school construction is funded through coal lease monies. Concerns were heightened when a recent federal lease in the Powder River Basin, failed to garner any bids.

Coal rose in price by over 28% since 2007, however production was down nearly 10%. CREG projects that the price of coal will remain steady, however production is likely to increase.

Coal has many hurdles to overcome, not the least of which is federal mandates making it all but impossible to keep coal as the primary source of electrical generation in the U.S.

According to the U.S. Energy Information Administration (EIA) in 2012 electricity generated by coal was down 23% from levels in 2003. While generation from natural gas is up nearly 53%, and generation from renewable resources(other than hydroelectric) is up 36%.

In 2003 Coal made up over 50% of all electric generation in the U.S., now it makes up just over 37%.

Even though coal usage in the U.S. has declined, and is likely to continue to do so, worldwide demand is on the rise. As long as ports can be found to ship coal, Wyoming will continue to produce it.

What is bad news for coal, is obviously good news for gas. Wyoming will stand to benefit from whatever fuel America utilizes for its electricity needs, whether it be coal, gas, nuclear, hydroelectric, wind or solar.

In 2003 natural gas generated nearly 17%, by 2012 that had risen to over 30%. Renewables, other than hydroelectric made up 2% of electric generation in 2003, that had grown to over 5% in 2012. (U.S. Energy Information Administration (EIA).

The 500 pound gorilla in the room right now is gas. It is not a matter of if gas will boom again, but when, as gas is rising as the apparent replacement fuel for coal.

The price of natural gas was down nearly 22% from 2007 prices, while production remains steady. The CREG report projects that natural gas prices will again rise to over $4 while production remains steady.

The key to another natural gas boom in Wyoming, will not be gas prices, which are almost guaranteed to rise due to the increasing demand for gas fired power plants, but the ability for Wyoming to be able to deliver the gas to large markets. Pipeline capacity from Wyoming is slim, especially when compared to our massive gas reserves. The cost of pipeline construction, and the environmental regulations governing it, are a hindrance to the gas industry.

The price of oil is up 27% over the 2007 price, and production was also up 3 million barrels a year, not quite 5%. The CREG Report projects oil production and prices to rise moderately over the next few years.

While oil production is up in the state, it cannot be considered a “boom” and it probably won’t boom unless easily obtainable resources can be found and produced affordably, a difficult premise with the feds stymieing exploration of public lands.

The renewed interests in Wyoming oil is certainly helping our industry, and at least partially, (a big part of the partially), funding the uptick in construction in the state.

Trona jumped over 32% in price while production fell just over 5%. CREG reports that trona production and prices are likely to remain steady. Trona exports abroad are likely to continue to keep the industry strong, even if it falls off in the U.S. This makes trona one of the most stable mineral industries in Wyoming.

Uranium has fallen from a high in June 2007 of $136 a pound, to current trading prices of $39 a pound, and the current “anti-nuclear” culture, especially following the recent disaster in Japan, will continue to hamper the Uranium industry for some time to come.

Wyoming has long tried to separate the well being of our economy from the ups and down of the mineral industry, and diversification attempts are often thwarted by the next big mineral boom, and attention then refocused on gaining as much from that boom as possible before the rug gets pulled out from underneath. This cycle is almost as old as Wyoming itself, as our state of mind, depends largely on the state of our mines.

While the challenges are daunting, the long term outlook for Wyoming’s construction industry is positive and strong. There will be bumps along the way, but hopefully everyone will be too busy to notice.