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
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
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
Louisiana, which along with Oklahoma and Texas make up the
three largest gas producing states in the nation, is also
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
Among those were Amoco, Arco, Meridian, Chevron, Mobil and the
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