For the first time since 1997, Oklahoma has changed its cap on natural gas production. The decrease comes amid a glut of resources and concerns about low oil and gas prices. Journal Record editor Russell Ray explains what the industry's big players are saying about the change.
Full transcript:
Drew Hutchinson: This is the Business Intelligence Report, a weekly conversation about business news in Oklahoma. I’m Drew Hutchinson. Joining me is Russell Ray, editor of The Journal Record.
This week, I’d like to discuss the Oklahoma Corporation Commission’s recent decision to decrease the cap for the state’s natural gas production. The prior cap had been in place since 1997. Russell, in layman’s terms, can you explain what we’re talking about here? Is it significant to Oklahoma producers?
Russell Ray: Well, the change actually may not be significant. Production from Oklahoma gas wells has long been capped at 65 percent of its open flow rate, or a maximum of 2 million cubic feet per day. But that limit was essentially irrelevant because it far exceeded the capabilities of nearly every gas well in the state. The new limit is 50 percent. Some say the new limit will help stimulate demand and prop up gas prices. Others say it will have little impact on the market because production is already in decline and demand is expected to improve with the opening of new pipelines.
Hutchinson: So as you said, and according to The Journal Record story, this change really might not affect too many wells in Oklahoma. So what are the specifics of that?
Ray: Well, only 434 wells in the state are capable of producing more than 2 million cubic feet per day of natural gas in the first place, and these wells don’t operate at full capacity most of the time.
Hutchinson: So, according to the Journal Record story, the proponents of this reduction in the cap say the goal is to help the supply of natural gas match the demand. The theory is that this will help stabilize, if not prop up, natural gas prices. But some don’t feel it’s the right move at this time. What are the arguments for and against this cap reduction?
Ray: Well, supporters of the action say the move will reduce a glut of natural gas supplies and prop up prices, as you said. Critics claim the measure will do little to affect the market. They say that natural gas production is already in decline and that demand will rise on its own. The commission received comments from 13 active natural gas producers in Oklahoma on this issue. Seven of those producers opposed the change, and five supported it. The Corporation Commission voted 2-1 to approve the lower cap, and Commissioner Bob Anthony voted against the measure.
Hutchinson: As you said, the commission did recieve comments from those 13 natural gas producers in the state, and there were some big names among those that weighed in. What did they have to say about the issue?
Ray: Well, Devon Energy and the American Petroleum Institute opposed the lower cap. They said it will not significantly affect gas prices. They said it would create an uncertain regulatory environment that could affect investment from out-of-state companies. Supporters of the lower cap, including Continental Resources, said the change was needed to conserve the state’s abundant supply of natural gas and to mitigate waste.
Hutchinson: The new rate will go into effect on April 1, and the commission will reexamine in six months. Corporation Commissioner Todd Hiett said he thinks the decrease was the right thing to do given the available information, but that doesn’t mean he wants a hands-off approach after the cap decrease goes into effect.
Ray: Yes.Hiett said he wants commission staff to monitor the effects once the new limit is in place. Hiett said the natural gas industry is important to the state economy and a crimp in production could have unwanted effects.
Hutchinson: Russell, thank you for talking with me today.
Ray: My pleasure, Drew. Thank you.
Hutchinson: Russell Ray is editor of The Journal Record. KGOU and The Journal Record collaborate each week on the Business Intelligence Report. You can follow us both on social media. We're on Facebook, Instagram and Twitter: @journalrecord and @KGOUnews. The story we discussed today is available on JournalRecord.com. And this conversation, along with previous episodes of the Business Intelligence Report, are available on our website, KGOU.org. While you’re there, you can check out other features and podcasts produced by KGOU and our StateImpact reporters. For KGOU and the Business Intelligence Report, I'm Drew Hutchinson.
The Business Intelligence Report is a collaborative news project between KGOU and The Journal Record.
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