A Glimmer of Good Economic News
January 8th, 2010
DURANT, Okla. – Hello again, everybody! A glimmer of good economic news appeared on the horizon last week: Production of natural gas is increasing.
Certainly, some of that is being driven by the cold weather of winter. Even so, cold weather alone will not create a sustainable demand for natural gas; it will take increased industrial and commercial demand to have the kind of long-term positive impact on state coffers that we historically saw from natural gas.
Oklahoma’s budget has been largely determined by the fortunes of the energy industry. In fact, natural gas production – and the range of tax revenues it generated – kept Oklahoma from sliding into the national recession as fast or as deeply as most of our sister states.
While states like California were all but going bankrupt, Oklahoma was riding high with strong revenues generated by the economic activity of the energy industry. Natural gas will be a part of our future for some time to come. With current exploration methods, there are today more known natural gas reserves in Oklahoma than at any time in our history.
However, the natural gas we have in Oklahoma is some of the most expensive to produce. It is either locked in tightly-packed shale formations – like the gas around our area – or very deep beneath the surface, like it is in much of western Oklahoma. Getting gas in either case is expensive and it requires a slightly higher price to make production cost effective for producers.
As the worldwide economic slowdown drove down the demand for natural gas, prices also slid – in some cases to less than $3 per thousand cubic feet. That made it less profitable – and in some cases unprofitable – for natural gas producers to maintain drilling levels here in Oklahoma.
That is when the recession struck home for Oklahoma. The production of natural gas creates far more revenue than that generated solely by the gross production tax.
When rigs are drilling, property taxes, income taxes and sales taxes are all generated, boosting not only the state but the regions where the production is happening. Workers come in to produce the resource, and they will have money to spend in stores, renting or buying homes – all of which strengthens both the regional and state economies.
The price is rising to sustainable levels for drilling, and hopefully a balance will be achieved. That balance is a price high enough to support drilling in Oklahoma – especially in the shale formations across our area – but not so high that it puts an undue burden on consumers.
This is not a quick fix – it could take six months to a year for the increased production to have a continued impact on the state budget. Still, the announcement that natural gas production is increasing is good news for Oklahoma’s economic future at a time when good economic news is sometimes scarce.
Thanks again for reading this week’s “Senate Minute.” Have a great week, and may God bless you all.