Christy And Ben’s Blog

Looks as if it will take a day or two longer to get things moved to WordPress. In the meantime, Gary Smith from GCP has one more update on the Ohio House of Representatives’ Alternative Energy Committee:

On June 20, the House Alternative Energy committee had its final hearing before summer break. With the passage of House Bill 119, Ohio’s 2008-2009 biennial budget, the Ohio General Assembly recessed until late summer or early fall. It is the intention of Chairman McGregor to have the Legislative Service Commission start the process of drafting legislation that the committee will debate this fall. The bill, presumably, will create the framework for a comprehensive alternative energy strategy for Ohio.

The final session of educational testimony was delivered by Thomas E. Stewart, the Executive Vice-President of the Ohio Oil and Gas Association. Headquartered in Granville, Ohio, the Ohio Oil and Gas Association represents Ohio’s independent oil and gas producers. The association’s 1,300 members are involved in the exploration, production and development of crude oil and natural gas within the State of Ohio.

According to Mr. Stewart’s testimony, Ohio’s independent oil and gas companies employ about 4,600 people in the state. “Independents” are defined as those companies that are nonintegrated and receive nearly all of their revenue from production at the wellhead. Unlike “major” oil companies who refine and market other petroleum products, independents can not recover production and regulatory costs by passing those costs on to consumers.

Interestingly, Ohio’s coal extraction companies employ a mere 2,484 people—a little more than half of those employed by Ohio’s independent oil and gas companies.

Stewart offered other interesting facts. For instance, independent producers drill 90 percent of domestic oil and natural gas wells, produce 82 percent of the natural gas and 68 percent of crude oil here in the United States.

As for the price of oil and gas, Mr. Stewart held his members harmless. He explained to the committee that independent producers are “price takers”, not “price makers”. Specifically, independents do not set the prices for their products; they receive the prices created by the market. According to Mr. Stewart:

Today’s commodity market assesses current and future factors that affect supply
and demand—such as OPEC production quotas, weather, inventories, and social
impacts. The principal factor shaping day-to-day pricing is trading on the commodity
exchanges between willing sellers and willing buyers, with all the volatility that comes
with those markets.

Mr. Stewart’s testimony continued by describing the fundamental rule of the oil and gas business. That is, because existing wells deplete, the only way to sustain the industry is by the drilling of new wells. Consequently, access to the resource base is the number one priority issue confronting the domestic oil and gas exploration and production industry, according to Stewart. Stewart uses this point to transition into his most controversial, yet poignant point—the focus of this issue in Ohio is “unlocking” the oil and gas potential under state lands (state parks, wildlife areas, forest lands, etc). Currently, according to Mr. Stewart, the Ohio Department of Natural Resources owns and manages more than 590,000 acres of land in 74 state parks, 20 state forests, 127 nature preserves and 120 wildlife areas.

Mr. Stewart pointed to a recent petroleum engineering study of Salt Fork State Park which suggests that a tremendous natural gas potential exists in and around the park. In fact, Salt Fork is totally surrounded by natural gas wells—and they have been there for decades. The committee seemed to be receptive to the idea. We will see if that particular issue finds its way into the yet-to-be introduced legislation.

Finally, Mr. Stewart articulated his support for other forms of alternative energies. According to Mr. Stewart, energy prices are sending clear signals that the markets are under stress—and will remain so until we find solutions to meet our growing energy needs.

In summary, Mr. Stewart reiterated his association’s position on opening up public lands for exploration, emphasized the need to increase natural gas supplies to help boost economic development while ensuring more stable prices for natural gas, renewed the call to reevaluate restrictions on natural gas exploration (based on new technologies), called for increased roles for renewable forms of energy (with the understanding that all forms have their own unique problems), and challenged state officials to overcome the “not in my back yard” mindset that sometimes paralyzes development.

To reiterate, over the summer, the Ohio House Alternative Energy committee will be formulating a legislative response to the alternative energy problems that have been highlighted over the past few months by the many witnesses that came before the committee. I am sure many of the ideas that were articulated by these talented witnesses will be incorporated into this legislation. If you have ideas or thoughts you would like to share, I would submit to you that it is not too late.

If you would like more information on the process, do not hesitate to contact me. Otherwise, you may contact the Chairman’s office directly—or any member of the committee you may know, for that matter. Thanks for taking the time to read my posts—I hope you found them informative.

Gary Smith