Where will Oklahoma's energy industry go from here? The likely answer could surprise you

Jack Money
A natural gas pipeline compressor station. [THE OKLAHOMAN ARCHIVES]




A report issued by the State Chamber of Oklahoma in September 2016, for example, showed:




Energy industry slowdowns, it observed, typically lead to losses of gross production, property, sales and income tax revenues and an associated loss of discretionary spending.


As the next administration under President Joe Biden prepares to take office this month, questions again are being asked about how federal energy policies might change and how that might impact Oklahoma’s energy industry.



Over the years, he represented the industry and its viewpoints on environmental, trade and tax policies that all influenced the success of oil and gas operators in the state.



“I have done my fair share of that, looking back, and asking whether or not the positions I took were right,” Cantrell said. “The question is: Should we have let the marketplace decide?”




A 40-year itch



"That's the least awful of all ways to tax the industry," Swearingen said.


The International Association of Drilling Contractors called for the president to save the oil and gas drilling and exploration industry from "imminent collapse" by using his executive authority to impose import fees on both oil and gasoline.

"The collapse of oil prices in combination with punitive actions of the Congress and the federal government in the form of windfall profit taxes, natural gas price controls and the like, threatens to destroy the U.S. independent oil and gas industry and critical drilling and exploration efforts with it and threatens the security of the nation," said association President Ned E. Simes. “President Reagan used this authority recently to limit the import of cedar wood shingles from Canada. Certainly, the survival of America's energy industry is at least as strategic as that of the wood shingle industry."

As the 1988 presidential election between candidates Vice President George H.W. Bush and Michael Dukakis approached, Oklahoma’s energy producers were hopeful Bush would support the industry. But by the time he sought a second term in 1992, markets remained in control.


"There remains no commitment, or even recognition, from this administration to address the urgent problems and inequities within the domestic oil and gas industry," said F.W. "Pete" Brown, the OIPA's president at the time. "President Bush has been criticized for not having an energy strategy. I believe he has an energy policy — cheap oil today, regardless of the cost tomorrow."






Growth of natural gas


That changed after a law Congress approved in 1978 began to exempt natural gas recovered from depths of 15,000 feet or greater from those price constraints.

In the fields of western and northwestern Oklahoma, drilling rigs practically appeared overnight, capping pioneering efforts of Oklahoma oilman Robert A. Hefner III and others to produce natural gas from wells drilled deep into the Anadarko Basin.



Those changes had little impact on natural gas production from the Lower 48, however. While federal expectations for production from wells in 1985 was about 159.5 trillion cubic feet (Tcf), that forecast had been lowered to about 152.5 Tcf in 1993, when the fuel's average price was just $2.04 per thousand cubic feet (Mcf).


"In America today, I see us miles from where we should be in our approach to energy," said Pickens, then the general partner of Dallas-based natural gas producer Mesa Limited Partnership and newly elected chairman of the Natural Gas Vehicle Coalition. "What's wrong with converting to a domestic resource that is environmentally superior, creates jobs, reduces the trade deficit, is a domestic resource that is cheaper than the alternative and doesn't require an army to guard it?"


His call to mainstream the fuel’s use was joined by other Oklahomans like Aubrey McClendon, who founded Chesapeake Energy with Tom Ward in 1989.




Imports vs. exports





“The U.S. is poised to become the world's largest oil producer, and the study shows that access to foreign customers will create economic opportunities across the country,” said Kyle Isakower, the institute's vice president for regulatory and economic policy. “When it comes to crude oil, the rewards of free trade are not limited to energy-producing states. Scarcity is giving way to abundance, and restrictions on exports only limit our potential as a global energy superpower.”


Since then, exports of both crude oil and liquefied natural gas (LNG) climbed. In 2015, the U.S. was exporting about 4.75 million barrels of (refined) petroleum products daily. In 2019, that average had climbed to nearly 8.6 million barrels with much of it crude, while net imports had fallen to just a half million barrels daily. The U.S. achieved a status as a net exporter of petroleum products in September the same year.


Rise of renewable energy

Oil shocks in the 1970s, emerging environmental concerns and technological advances prompted interest on both state and federal levels to create new ways to develop renewable energy.

Several Congressional acts led in to 1992’s passage of legislation that established a renewable energy production tax credit and other incentives and credits programs for renewable energy sources that have been expanded and extended various times since.






According to the Oklahoma Corporation Commission, renewable projects impacted Oklahoma in other ways over that time, too, including generating an estimated $235 million in state and local tax revenue, more than $200 million in land lease payments and creating more than 7,000 jobs.


In recent years, regulated electric utilities also have deployed commercial-size solar farms, capturing another plentiful renewable resource within the state, while private contractors have been working with homeowners to install home-size systems.

The first commercial-scale wind, solar and battery storage project is being built now in northern Oklahoma.

'Markets drive outcome'

Cantrell agrees that successes and failures of Oklahoma’s energy producers the past decade were largely made by consumer choices.

“As a democracy, do we allow government participation in marketplace decisions? It is a complicated system, because what we have is a mix where we have a free market where the government participates. So, you need to find a balance between doing what is best, and doing what you think is right.”





President Jimmy Carter, he remembers, advocated rapidly deploying solar energy to help the nation wean itself off natural gas. But the manufacturing of solar panels was not economical until just five years ago.

“And who would have thought that President Barack Obama would have overseen America becoming the largest oil producer in the world? That happened in 2014. There was more oil and gas produced during his last term than there was during Trump’s term. Why? The market fell out. Similarly, President Trump’s promise to support coal couldn’t be fulfilled because the economics couldn’t support it.

“Policymakers can try to do some things that generally open or constrict traditional development, but when you look at how energy in Oklahoma has evolved over the past 40 years, at the end of the day, markets drive outcome. Politicians can promise, but the markets deliver."