Newspaper article THE JOURNAL RECORD

Market Forces Expected to Cause Gas Shortages

Newspaper article THE JOURNAL RECORD

Market Forces Expected to Cause Gas Shortages

Article excerpt

By Ronda Fears

Journal Record Staff Reporter

Forecasted shortages of natural gas will be caused by market forces, not production restrictions in Oklahoma, it was said in a hearing Tuesday before the Oklahoma Corporation Commission.

A rule is being enacted at the commission pursuant to Senate Bill 663 that passed in the last session of the Legislature, revising the state's proration system to lower production limits for unallocated gas wells in the state.

Because of the potential shortage, large gas consumers asked the commission to consider a wider margin than the 10 percent surplus proposed in the new proration rule to meet demand peaks. They also expressed fear that buyers will lose their ability to "shop producers" and thus, gas prices will rise.

When the law was passed in March, "the market was over supplied," said H.G. "Buddy" Kleemeier of Kaiserancis Oil Co. in Tulsa.

"Whether you believe in proration, whether you support Senate Bill 663, market forces are at play here," he said.

"Whether you want to believe it or not, there is going to be shortages (of natural gas)."

Indeed, numerous experts predict that supply and demand of natural gas will emerge by late 1992 or early 1993, thereby bursting the solled "gas bubble" that has lingered for more than a decade. Some also forecast real shortages due to rising demand and lower drilling activity in the past two years while gas prices were depressed.

Tighter supplies will naturally drive prices up, experts note.

Executives of Agricultural Minerals Corp. of Tulsa, which has fertilizer plants near Tulsa and in Arkansas using 36 million cubic feet of Oklahoma gas yearly, asserted Tuesday that price is the underlying motive for proration reform.

"Markets, by definition, involve price and deliverability of commodity," said Steve Savage, vice president of Agricultural Minerals and manager of its Verdigris, Okla., plant.

Wellhead gas prices, those received by producers, in Oklahoma averaged $1.46 per thousand cubic feet in 1991, a 7 percent decline from $1.57 in 1990. Gas prices dipped to below $1 at times in both 1990 and 1991. Unregulated gas prices peaked at nearly $10 in the early 1980s; the average statewide peak was $2.80 in 1983, according to the commission.

To Savage and other consumers, Commissioner Cody Graves said:

"There are a great number of people out there who love a free market for gas while the price is on the decline. I hope these people continue to love a free market when there's a price rise."

Proponents of proration reform, and commission staff, assert that the issue is grounded in correlative rights, not the price of natural gas. Correlative rights protect producers and mineral owners from drainage by others in a producing area; proration is a mechanism to divide the market among producers more equitably, supporters say. …

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