Ben Neary, Associated Press
Wyoming Gov. Matt Mead addresses reporters Tuesday, Feb. 7, 2012, at the State Capitol in Cheyenne, Wyo. Mead discussed the state's biannual budget which will be the main subject of the legislative session which begins next week.

CHEYENNE, Wyo. — Gov. Matt Mead said Tuesday he and state lawmakers were watching slack natural gas prices with concern as they consider the state budget for the coming two-year funding cycle.

Mead proposed a $3.4 billion state funds budget in December based on state revenue projections that called for natural gas to average $4 per thousand cubic feet this year.

The governor was forced to cut his spending recommendations by over $100 million in January after analysts cut their projected average gas price to $3.25 per thousand cubic feet.

Mead said the 75-cent reduction in natural gas prices amounts to about $113 million less in projected state revenues.

Gas is currently trading at around $2.70 per thousand cubic feet at the Opal Hub in western Wyoming.

State economist Wenlin Liu said Tuesday that several national analysts are now projecting natural gas prices will average about $2.50 for the rest of the year.

Mead said he's concerned that the state's current $3.25 projection of the year's average price may be too high.

"I do have a concern that maybe at this point, it's a little bit optimistic," he said. "And it's not just based on today's prices."

Mead believes Wyoming needs to push projects that add value to natural gas, such as natural gas fired turbines, natural gas fired vehicles, or natural gas to liquids plants.

The Legislature begins meeting next week to craft a state budget for the two-year funding cycle that starts in July. The proposed budget approved last month by the Joint Appropriations Committee calls for setting aside $150 million of state reserves in case lower natural gas revenues lead to a funding shortfall.

"Whether or not gas prices go up or down, the belief is that the $150 million will be enough to cover it," Mead said.

The committee's proposed budget included no funding for state employee pay raises. It also denied Mead's proposal to put up an additional $37 million for the state health department to cover a decline in federal economic stimulus funding for Medicaid.

Mead said he intends to continue talking with legislative leaders about whether funding can be found for pay raises.

However, Mead said, "The fact is, we have to start out with the premise that we have to be fiscally conservative now, to make sure that we don't put ourselves in a hole down the road."

Mead will kick off the start of the legislative session Monday with his state of the state address.

"Wyoming is in a very good place," Mead said. "I talk to other governors from around the country, and see some issues that they're facing. Wyoming is strong in many ways, not just financially."