Lawmakers in Santa Fe, who depend on tax revenue produced by natural gas sales, are concerned about the recent drop in prices.
The Natural Gas Processors Tax, together with taxes on oil production, provides millions of dollars in revenue each year, making the price of those commodities a major concern.
Predictions for the upcoming fiscal year were drafted in December, when gas was priced at $5.60 per million British thermal units. This would have generated an estimated $250 million in added revenues from last year, but the price has since fallen to $2.49 per million units, as of Feb. 8.
Gary Murray, manager of supply and system planning for the New Mexico Gas Company, said the low rates of the past two months have been caused by a gas surplus and an unusually mild winter.
“Gas is bought and sold on a national market and the price is determined based on supply and demand,” Murray said. “Weather can have an effect on demand, and therefore price. We’ve had a moderate winter nationally without any huge storms or supply disruptions. All of that is figured into the supply picture.”
According to Murray and NMGC spokeswoman Monica Hussey, the price of natural gas is unpredictable. The current price is lower than it was February last year by nearly 25 percent.
Sen. John Arthur Smith (D-Deming), chairman of the Legislative Finance Committee, said the unpredictably of fuel prices can make estimations for the future tentative.
Smith said the recent fluctuations merit some attention as legislators discuss new financial policies. However, a recent report by a consensus group composed of economists from various executive departments and legislative committees draws a different conclusion.
In January, Thomas Clifford, New Mexico finance and administration secretary-designate, reported the group’s findings — chiefly, that no new estimate was needed to prepare a budget.
“The group concluded that no change in the General Fund forecast is warranted at this time,” Clifford’s report reads.
The economists concluded that because the price of oil had risen as the price of natural gas dropped, the predicted revenue would not be greatly affected. In fact, according to the report, “the level of oil prices is now more important to the General Fund than is the level of natural gas prices.”
The consensus group also states that the unusually low prices will affect an increase in demand, which will correct the price.
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Smith said not readjusting predictions could be dangerous.
“It’s not that I don’t believe (Clifford), because he’s very competent,” he said. “But I do watch the commodity market, and I’ve watched natural gas closely because of its ability to either make or break you overnight.”
Smith said that in a worst-case scenario, the state could be $150 to $200 million short of the original prediction.
“When they talk about 250 million new dollars, I’m a little apprehensive that it could be consumed by miscalculation on natural gas alone,” Smith said. “I said (to Clifford), ‘You and I both know that, when it comes to natural gas, we’re both somewhat guessing and we hope we’re right,’” Smith said. “And he just laughed. He said, ‘You got it there.’”
