WHAT a week for natural gas in Oklahoma — and we're not referring to Chesapeake Energy's troubles.
On Monday, Gov. Mary Fallin joined 12 other governors in an appeal for automakers to produce more affordable vehicles that run on compressed natural gas. A day later, Love's Travel Stops rolled out plans for a grand opening at six new CNG fueling stations in the state.
Also, reports surfaced Wednesday that large gas producers are significantly cutting production and that consumers — spurred by lower prices — have started using more of the stuff to make power and heat homes.
These developments couldn't come at a better time for Oklahoma. An oversupply of gas has pushed prices precariously low. One way forward is to increase demand for gas; a good way to do that is to increase the number of vehicles that run on CNG and the number of power plants that use gas to make electricity.
The effect of lower prices on the gross production tax take has been dramatic. The average natural gas spot price in April at the benchmark Henry Hub in Louisiana fell to $1.99 per thousand cubic feet (MCF). State revenues were projected based on an estimate of $3.64 per MCF for fiscal 2013. Gross production tax revenue fell in April for the fifth consecutive month. And the U.S. Energy Information Administration has lowered its price forecast for 2012 from an average of $3.27 per MCF to $2.59. We can only hope the figure at least reaches the lower number!
Chances are it will be even better because companies such as Exxon Mobil and ConocoPhillips say they'll continue to bring less gas to the market and drill fewer gas wells. Devon Energy, which (like Chesapeake) is based in Oklahoma City, is moving more toward the lucrative oil and natural gas liquids markets and away from natural gas.
Storage levels for gas are increasing at a slower rate. In February, a record amount of electricity was made with gas, The Wall Street Journal reported. Lower prices have motivated some homeowners to switch from propane or other heating sources to natural gas.
These are short-term trends. Longer term, the 13-state initiative should help by converting state fleets to CNG. The new fueling stations (in which Chesapeake is a partner with Love's) will help unscramble a chicken-or-the-egg dilemma about CNG: Either demand for CNG will first lead to more fueling stations or more fueling stations will first incentivize the purchase of CNG vehicles.
Incentives are already in place — state tax credits for buying CNG vehicles and a pump price of less than $1.70 per gallon of gasoline equivalent. More are welcome. Most welcome of all would be higher yet relatively stable prices for gas.
In a state that remains the nation's fourth-largest natural gas producer, every citizen has a stake in the well-being of the gas industry and should be offering up the gas claps for any positive trends.