Move Started to Reinstate Natural Gas Supply Equilibrium

Article excerpt

Debates on natural gas proration have not yet gotten fully under way in Oklahoma, but there is a move to reinstate the measure created back in the 1930s to equalize supply and demand.

Oklahoma proponents of market demand proration already know their enemies _ big gas producers and marketers in particular, and likely large end-users, too.

It's a challenge to try to understand any argument against a measure to bring supply into equilibrium with demand, especially given the pervasive gas bubble that has plagued the industry for so many years. But read on, those "agin'ers" take shape.

"Those (huge gas producers and marketers) are the ones that feed off the chaos in the natural gas industry," said Wayne Swearingen, president of Swearingen Management Associates in Tulsa, one of the loudest proponents of proration and a longtime energy expert.

The gas industry now is full of contradictions.

Natural gas is touted as the fuel of the future due to its benevolent environmental qualities. Yet, for all its worth, producers are not being compensated adequately to cover their costs of production.

In July, gas prices hit a 13-year low. Furthermore, prices have been static for the past three years.

Debates on proration likely will not gain momentum in Oklahoma until the Legislature convenes in February, but the heat is on in Texas.

Louisiana, which along with Oklahoma and Texas make up the three largest gas producing states in the nation, is also considering proration.

As is predicted will be the case in Oklahoma, a couple of weeks ago in Texas big producers wailed about doom and destruction before the Texas Railroad Commission if state regulators tamper with the system.

Among those were Amoco, Arco, Meridian, Chevron, Mobil and the like.

Amoco is the largest natural gas producer in Oklahoma.

"The proposal to limit production by some market demand factor creates instability," asserted Arco attorney Kathleen E. Magruder.

"Such instability in the gas market creates reluctance on the part of end users . . . to enter into longterm contracts. It will confirm people's worst fears about this industry." Nonsense, says Swearingen and another Oklahoma proponent, state Energy Secretary Charles Nesbitt, who is working on the Sooner State proposal for a season proration during summer months when demand for gas is lowest.

Indeed, it does not seem logical to produce gas just for the sake of producing _ likewise for any goods. Anyone with even moderate business acumen can figure that out. If there is defined market for a commodity, goods or services, then it is not prudent for supply to exceed that limit.

Yet, big producers _ most often which are major oil companies and huge independents that have chemical operations along with production _ and gas marketers do benefit from oversupply, Swearingen has pointed out.

Natural gas is a feedstock for chemical operations, and refining operations, too. Companies with those operations cannot produce all the feedstocks they need. Thus, they have to go to the open market, and obviously prefer low prices.

From a marketer's standpoint, he or she is the middleman. The lower the price a marketer has to pay the producer, the larger the margin of profit for the marketer.

Many opponents to proration in Texas charged that the only purpose of the measure is to prop up prices. Dom Dominy of Amex Oil and Gas said a better approach is to strive for new markets to boost demand rather than constrain production.

A meritorious argument, indeed.

But despite ongoing efforts to creae new markets for gas, such as natural gas vehicles, gas cooling, cogeneration and combined-cycle power generation, nearly everyone agrees that it will be some time before those niches transform into prominent markets. …