So, gas is growing in importance as a key fuel for making power. Will the prices grow as fast as the demand? If they do, it would be good for Oklahoma's economy and for state revenues. Depressed gas prices have led state-based energy firms to switch their emphasis from gas to oil; meantime, the state's take from gross production taxes has plummeted, falling 85 percent in December from the comparable month of 2011. Market forces aren't the only reason for this plunge, but they do play a role.
If an increased emphasis on gas to make power is good for the state, Oklahomans should be thrilled by recent trends, right? Yes and no. Over time, gas prices will rise; increased demand (to make power and to fuel vehicles) will translate into higher severance tax revenues. At the same time, consumers could find that moving away from coal means sharply higher electricity rates.
Oklahoma is one of only three states that encourage utilities to buy gas on long-term contracts. Oregon and Colorado are the other two. The danger is that any future surge in gas prices will be blamed on the utilities and the politicians who set energy policy. Indeed, Obama will have to answer for a policy that could see relatively cheap coal left in the ground (or shipped to China) while gas prices rise rapidly. In truth, though, he will likely be out of office before this scenario takes full flower.
The utility company presidents who are still in office have a difficult time deciding how to plan for future power demand. As much as we encourage new markets for Oklahoma-produced gas, we believe that power generation should not be over-reliant on one source of fuel and coal should not be left in the ground.