NGI The Weekly Gas Market Report
Oklahoma Corporation Commissioner Denise Bode is waiting forsomeone to be politically incorrect — at least when it comes tosetting up a domestic energy policy. She readily admits, however,that the problems that basically eliminated natural gas drillingfor nearly two years in her state won’t be solved overnight.
Encouraging Oklahoma’s producers to drill, helping them to trainnew workers with tax incentives and above all, putting a strongenergy policy in place at the national level so that prices don’tfall off again are issues that weigh on Bode’s mind every day.
Though oil production in Oklahoma is up slightly this year, Bodeis more concerned about the drop in the state’s natural gasproduction. OCC reported that while its oil production hadincreased 4.2% in April and May, natural gas production for thesame period dropped nearly 11.4%.
“Obviously, we can’t turn something around overnight,” said Bodeyesterday. “These problems started two years ago, and we didn’taddress it then, and now we’re seeing the fallout.”
Bode said that OCC is now beginning a “three-to-six-monthprocess” to plan a course of action to encourage more drilling inthe state, with tax incentives leading the laundry list of ideas.
“We want to be thoughtful about what we might do,” she said, andOCC now is considering a plan to encourage more deep gas drilling.”It’s a balancing act, because we’ve got the shallow guys drilling,who don’t want to have the deep drilling and then be put at adisadvantage. So we have to work out a fair way so that no one isat a disadvantage.”
Oklahoma currently has 21 gas-powered generating facilities onthe drawing board, but Bode said that the state has to ensurethere’s enough supply before they are built. She worries, though,that without the facilities, the state could fall into a situationlike California is in now, where demand is high but there is notenough supply.
“We (the state) are at a great advantage because right now, weexport 70% of our gas to other states, so we have tremendous excesscapacity,” said Bode. “We have the gas, but we also have toconsider at what price will we have the gas.”
In May, natural gas prices averaged $2.34 Mcf, down 36 centsfrom April. It still was well above the May 1999 price of $1.71.
“While both crude oil and natural gas prices are up from lastyear, we still haven’t overcome our infrastructure losses from thedevastation of 1998’s low prices,” she said.
OCC also is concerned about the high depletion rate, which Bodecalled “fairly dramatic” in the state. “We really need to sit downand take the gloves off and plan correctly. Gas is in the ground,but we can’t allow two years to go by without drilling.”
For the first time, Bode thinks that the public sector isfinally on the same page as the private sector. Though low energyprices appealed to consumers, they discouraged new investment,which in turn discouraged production. Eventually, the prices jumpedwhen supply was low and demand shot through the roof. Industry hasfinally convinced consumers that they want natural gas, but “now wecan’t give it to them,” she said.
“The consumers, and the producers, interests are absolutelyidentical now.”
How can the problem be solved? With states doing what they canto encourage production, Bode puts a lot of what happens to levelout supply and demand on national leadership, which she said hasbeen lacking n its energy policies.
“We need national leadership, and we need someone who’s willingto not necessarily be politically correct to say that the pricesmay have to go up to encourage more activity. There’s so much wecould do and several years ago, the industry started talking aboutthis but nobody listened. They are listening now, especially afterwhat we’re seeing in California.”
Oklahoma’s energy sector also has been hard hit by a laborshortage, which Bode called “atrocious.”
She said she sees “white collar petroleum engineers retrainingfor the telecommunications and dotcom industries.” The rigs arethere, too, but without qualified workers to run them, they sitidle. “Less than two years ago, some of these companies wereborrowing money to make payroll. Now they’ve lost those guys theyhad, and they can’t encourage anyone else to work. It’s a hugeissue.”
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