Commentary: Looking at Oklahoma's Gas Industry

By Pitts, William O. | THE JOURNAL RECORD, August 11, 2003 | Go to article overview

Commentary: Looking at Oklahoma's Gas Industry


Pitts, William O., THE JOURNAL RECORD


A broad study of the natural gas industry in Oklahoma is only one of several affecting the petroleum industry to be considered by House of Representatives committees during the current interim between sessions.

How far these studies will go and to what extent they will affect the petroleum industry probably won't be known until when or if they are completed. One of these is by Rep. Clay Pope, D-Loyal, which is proposal No. 03-106.

It calls for a study of natural gas availability and production in the state. It asks for a review of existing incentives for drilling, and search for new or more effective ones.

It will seek discussion of what the proven and unproven reserves in the state are. The sponsor also wants to talk about what the market price is predicted to be and what effect that will have on Oklahoma citizens and state appropriations.

It appears to be an ambitious program, but much of what the study encompasses is data that probably already exists. It is the reasons behind such data that are important. They probably won't reveal much that is new either, but the study should give natural gas producers an opportunity to repeat what they have been saying for years.

There are large reserves of natural gas in the state. Its availability inevitably depends on price. Far more of it becomes available when the cost is $5 per million British thermal unit of gas than at $2 for a simple reason. At the higher price and with tax incentives, there is more reason to drill because of a quicker return on the investment dollar.

Then as prices go up, more drilling occurs and more gas becomes accessible. When there is an abundance of gas, competition drives the price down. When there is a shortage of gas, demand forces the prices higher.

That seems so axiomatic you would think it needs no explanation. It is doubtful any government by law or fiat has successfully been able to repeal that simple law of supply and demand without creating shortages or higher prices, or both. For years, leaders in the petroleum industry, perhaps more than any other group, have preached that economic truth seemingly to little avail.

They continue to be ignored by much of the consuming public, which rails at higher costs and complains when there are shortages. Even those who recognize the basic factors often fail to understand the time lag that goes with increased drilling and production.

For Oklahomans, a natural gas shortage is not a likely occurrence, but the price of natural gas to Oklahomans nearly always is governed by national, and perhaps in the future, worldwide gas supplies and prices.

As for predicting future natural gas prices, it is done on a regular basis, but not always with any degree of accuracy. It is like predicting the weather or the stock market. So many factors go into such forecasts.

Over the past three or four years, natural gas prices have skyrocketed to $9 and plunged below $2, sometimes without significant lead time warning.

There is no question the state treasury benefits from higher natural gas prices. They have ranged in the $6 level for the past several months. This has poured extra millions of dollars in gross production tax revenues into the state coffers.

Many in the industry believe natural gas prices are stabilized for the current year at between the $5 and $6 level because the nation's reserve of natural gas in storage is at its lowest point in years. …

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