West Virginia's economy will likely struggle through 2015 due to an energy transition away from coal toward cheaper natural gas, state Deputy Revenue Secretary Mark Muchow told lawmakers Monday.
Muchow briefed a finance subcommittee about projected trends in state severance tax collections during interim meetings at the Capitol.
With coal production down 10 percent this year and expected to decline further, state budget officials are looking toward growth in the natural gas sector to make up for coal's decline.
Muchow said the state economy as a whole could hit a rough patch during the transition from one resource to another.
"The state economy is likely to struggle significantly between 2012 and 2015 due to these changes in the energy sector," he said. "All of this leading to lower severance tax collections."
State severance tax collections, which helped buoy the state budget during the recent recession, are already down $45.6 million this fiscal year.
"The decrease in severance taxes is greater than we projected," Muchow said. "And it's occurring in both coal severance and natural gas taxes."
Coal severance tax collections are down 22 percent compared to last year. Natural gas collections are down 36 percent.
Muchow said weak global economic growth, decreased domestic coal demand and low natural gas prices are all contributing to the decline.
While natural gas production is up about 25 percent this year, the price has dropped from around $4 per million BTUs in 2011 to around $2 today.
The natural gas severance tax is calculated from the sale price. Lower prices mean lower tax revenue.
"Even though natural gas production is increasing, the decrease in price is more than offsetting the actual production," Muchow said.