Natural gas may be viable way to battle high costs at pump

Journal Record, The (Oklahoma City), Apr 28, 2008 by Jerry Shottenkirk

Most natural gas producers thought T. Boone Pickens brought up a good point last week when he addressed an energy conference here and asked why natural gas was not being used as much for transportation.

Pickens noted that 7 million vehicles worldwide run on the compressed natural gas, known as CNG, and only 150,000 of those are in the United States.

On the production side, Chesapeake Energy would be all for the conversion of vehicles to natural gas.

And on the consumer end, Chuck Mai of AAA Oklahoma said the masses likely would welcome CNG, or anything else that would bring down the cost of operating a motor vehicle.

Producers want it for a number of reasons, mainly because of the boost it would be to their coffers and to the state's economy and environment.

While many consumers also are worried about the environment, they'd like to be able to afford a tank full of anything that would get them to where they want to go.

Natural gas prices are currently much lower than crude oil when the two are compared on a BTU equivalency basis. Heading into the weekend, crude oil topped $118.50 per barrel and natural gas was at $10.95 per thousand cubic feet (MCF). Normally, natural gas is about one-sixth of the price of oil. That would make it approximately $19.75 or better per MCF. Compared to oil, it's a bargain, said Chesapeake spokesman Tom Price.

Mai said the nation, Oklahoma, Oklahoma City and Tulsa have registered record-high regular unleaded gas prices for six straight days. The national average is up to $3.58, Oklahoma is at $3.44, Oklahoma City is at $3.43 and Tulsa is at $3.42.

Natural gas prices are not at the mercy of international strife and out-of-control demand. But they are at the mercy of something even more powerful, Price said.

"I think the price thing is the part that's the hardest for all of us to know, exactly where prices are going," Price said. "Natural gas prices depend on the weather. We aren't good at predicting what the weather is going to be. Chesapeake has a meteorological team that works for us in Chicago. They are among the best in the industry and we use them to try to help us understand what the weather patterns are going to be like and how that's going to affect heating or cooling demand. But we still don't know for sure."

While natural gas is approaching $11 on the New York Mercantile Exchange, that's not the price that producers get in the state.

"That oftentimes leads people to believe that's what we get at the wellhead, which is absolutely wrong," Price said. "At the wellhead in Oklahoma, which includes a differential for the quality of the gas, transportation, compression, and gathering, for all of those things, yesterday we were getting $8.33."

Price said Chesapeake is working with the Association of Central Oklahoma Governments in Oklahoma City and the Indian Nations Council of Governments in Tulsa to focus more attention on the use of domestically produced natural gas in the state.

"Natural gas is what we have here in Oklahoma and right now we export about two-thirds of the natural gas we produce," Price said. "We are trying to focus more attention on that. Natural gas, on a gallon equivalent basis, will sell at about 40-50 percent below that of gasoline. In a $4 gasoline environment, you'd likely to see natural gas sell for the equivalent of $2 a gallon."

Mai said AAA Oklahoma and drivers in general would be willing to take a good look at anything that would reduce the costs.

He said natural gas may be the answer.

"Once the technology is to the point where the conversion process is affordable, we'll see that happen, as long as the fuel is available," he said. "It may take a higher gasoline price to encourage that kind of development. It's been said the cure for high prices is high prices. CNG could and should play a large role in solving the energy crisis. It would be good for Oklahoma's well- being and environment."

Price said that in time the issue will be brought to the fore nationally.

"It's amazing how little has been done in the U.S., in terms of trying to respond rationally to the issue we've got," he said. "The idea of thinking China or India or other developing countries are going to be the leaders is completely naive."

Americans use an average of 35 barrels of oil per person per year. In China, it's two barrels. In India, it's one. All of those figures are bound to grow.

"It's just extraordinarily unlikely those countries are going to be able to constrain demand growth there," Price said. "Since World War II we've been the dominant economic power and the user of an extraordinarily disproportionate amount of resources. But other countries are now getting to the point where they don't want to ride bicycles and live a Third World life."