Arkansas Energy Report: Severance tax revenue falls, coal production drops to 1984 levels

Editor’s note: The Arkansas Energy Report is produced monthly and is sponsored by the Arkansas State Chamber of Commerce/Associated Industries of Arkansas, and MISO (Midcontinent Independent System Operator). Talk Business & Politics makes every effort to use information current at time of posting.
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The latest Arkansas Energy Report shows that Arkansas’ severance tax revenue continues to decline thanks to the ongoing recession in the national energy industry.

With only one month left in Arkansas’ fiscal reporting year, severance tax revenues from the sales of marketed natural gas in May fell to their lowest level since the legislature upped the severance levy to capture growing revenue from the Fayetteville Shale play.

And according to monthly data collected by the Arkansas Department of Finance & Administration, tax revenues from natural gas sales are poised to fall more than 50% from last year’s peak tax bounty of $78.6 million. Year-to-date severance tax collections through May 2016 stood at $30.5 million, 56% below year ago levels when the cumulative severance tax collections stood at $69.5 million.

In fiscal 2015, Arkansas recorded its highest yearly severance tax collections at $78.6 million, slightly better than $77.3 million in the previous year. Arkansas several tax collections have not fallen below $50 million since 2010, a year after the Arkansas Legislature raised the levy on natural gas production across the state just as production in the Fayetteville Shale reached a peak.

Before this month, the lowest severance collections in fiscal 2016 were $2.08 million in January, $1.96 million in February and $2.16 million in March, according to data compiled by the state Department of Finance and Administration (DFA). February tax collections were also the lowest monthly level.

COAL PRODUCTION, NATURAL GAS POWER
Coal production in the first three months of 2016 was 173 million short tons (MMst), the lowest quarterly level in the United States since a major coal strike in the second quarter of 1981, according to a June 10 report from the U.S. Energy Information Administration.

A 17% decrease in coal production from the previous quarter marked the largest quarter-over-quarter decline since the fourth quarter of 1984.

Electricity generation accounts for more than 90% of domestic coal use. In addition to complying with environmental regulations and adapting to slower growth in electricity demand, coal-fired generators also are competing with natural gas-fired electricity generation during a time of historically low natural gas prices.

For the period ending March 2016 (the most recent EIA data available), natural gas produced 103,477 thousand megawatt hours of electricity, up 4.4% compared to March 2015. Coal was second at 72,313 thousand megawatt hours, down 33.4% compared to March 2015.

Overall, electric production was 303,837 thousand megawatt hours, down 6.4% compared to March 2015.

OTHER ENERGY REPORT ITEMS
• Gas prices in Arkansas have continued to move higher following the annual Memorial Day ramp up by retailers to kick off the beginning of the nation’s summer driving season.

• For the year, Arkansas’ drilling rig count remained at zero through the first five months of 2016 as all drilling activity in the Fayetteville Shale and other smaller plays across the state have come to a halt.

• While crude oil is primarily transported through pipelines, the amount of crude oil shipped by rail had increased from 2010 to 2014 as domestic crude oil production exceeded pipeline takeaway capacity for crude oil. After reaching more than one million barrels per day in 2014, crude-by-rail volumes declined slightly in 2015.

Link to this PDF for the complete Arkansas Energy Report.