Energy

By Robert Evatt

While 2020 wasn’t the best year for anyone, the energy industry was hit with a particularly nasty surprise. The sudden onset of COVID-19 and the lockdowns that came in its wake brought travel, commuting and a significant portion of work to a sudden halt, causing a dramatic drop-off in energy demand that year. But 2021 rapidly reversed the sector’s woes as society reopened and demand grew, according to Tom Seng, director of the School of Energy and Mervin Bovaird Professor of Energy Business at the University of Tulsa. “When you go back to last spring, oil had started to cross through the $60 per barrel area, and things started opening up locally and across the world,” Seng said. “Nobody expected demand to come back this fast.”

With demand back up, most oil and gas companies are now thriving. The previous year’s losses have given way to significant profits based upon high prices, and organizations that had to lay off workers are now replenishing their workforce, although some slowly. However, Seng said most publicly traded oil and gas companies, including local ones, have exercised restraint so far. Rather than significantly increase drilling, they’ve paid down debt, and publicly traded companies have bought back stock to shore up the stock price and pay better dividends to shareholders.

“It’s been remarkable to watch that fiscal discipline,” he said. Keener Oil and Gas Co. has followed the same path. Dewey F. Bartlett Jr., president of the company, said Keener, like others, are largely concentrating on paying off debt and building up depleted savings. “Rather than spending money by drilling, we are spending funds to repair and improve the production of our existing wells,” Bartlett said. “The pricing environment has been bad for quite a while. Those that stayed in business had to retrench in order to survive.”

Increased oil prices have been a boon to local oil companies, though opinions differ as to their cause. Seng said he believes the rapid rise resulted from a sudden increase in demand, with worldwide governments lifting COVID restrictions and life returning to something close to normal.

“No one expected demand to increase as rapidly as it has,” he said. However, Bartlett said the higher prices could also stem from the Biden administration moving to reverse much of the Trump administration’s work to increase North American oil production. “That prevented the importing of oil from Canada, our best friend and trading partner, directly to Cushing, Oklahoma, where domestic oil market prices are determined,” he said. Bartlett said he believes oil prices will stay in the $80 per barrel range this year, while Seng said he believes oil prices will fall throughout 2022 to lower levels than currently exist.

Natural gas on ice

Though oil prices shot up, the increase was nothing compared to what happened with natural gas. Brutal winter weather hammered the region in February 2021, with large amounts of snow and an extended period of sub-zero temperatures keeping everyone inside and struggling to stay warm. On top of greatly increased demand, the weather caused a brief halt to natural gas production. As a result, natural gas prices shot up from between $2$3 per Metric Million British Thermal Unit to as much as $23 MMBtu, according to the U.S. Energy Information Administration. Prices fell from the peak quickly but left the threat of high bills in future months to cover the cost of natural gas used by consumers. Sid McAnnally, CEO of ONE Gas, said utilities such as his worked diligently to both keep the supply flowing and prevent customers from seeing their gas bills skyrocket. ONE Gas had to react quickly to work with legislators to protect customers from the significantly higher price for natural gas used and smooth out customer bills forward. Right now, ONE Gas and other utilities are working with regulators to determine how to recoup the cost for natural gas used during the event from consumers through relatively modest monthly cost of gas increase, a process that could take decades. Seng said regional utilities have taken the lessons of February 2021 to heart and are making various preparations to ensure future harsh winters don’t take them by surprise.

“Utilities are preparing themselves in a better fashion than they were last year,” he said. “Though we don’t expect February to happen again, they’re running what-if scenarios.” McAnnally said ONE Gas and other natural gas utilities served their customers well during the cold snap. “The storm actually proved the reliability of the natural gas system,” he said. “We had very few outages for our customers during the February 2021 storm. Fewer than 900 of the 2.2 million ONE Gas customers experienced an outage. The few outages that did occur lasted less than 24 hours in most cases.”

The Sue Bland No. 1 well struck oil in 1901 in the west Tulsa neighborhood of Red Fork. The well produced 35 barrels of oil per day originally. Four years later, the Glenn Pool was discovered and Tulsa became known as the Oil Capital of the World.

A changing mix

Energy remains one of the Tulsa area’s most important economic drivers, but the state of Tulsa’s energy continues to evolve. In one of the biggest moves of the past year, Devon Energy completed its merger with WPX Energy, shifting hundreds of jobs to Oklahoma City. Seng said that with WPX gone, Tulsa no longer has what could be considered a traditional large energy company in the city. “The remaining companies are some of the original, family-established companies,” he said. Bartlett said that he knows of multiple smaller companies that had shut down during the worst of COVID, and Unit Corp. filed for bankruptcy. Unit emerged from the bankruptcy process in September 2020. Yet some of the losses in traditional forms of energy could be reclaimed with new sources. Seng said that numerous organizations are actively exploring new types of energy projects as they pursue SDG, or Sustainable Development Goals. “Companies in this town are aware the energy transition is happening, and entities are going from talking about what that transition might look like to starting to invest in new energy sources,” he said. Last year, the state of Oklahoma formed the Hydrogen Production, Transportation and Infrastructure Task Force, which works to research and report on the potential for Oklahoma to produce and/or market hydrogen as a fuel source. One of the ways to create hydrogen is to harness natural gas. McAnnally said ONE Gas is actively working with the task force.

“This is a longer-term solution,” he said. “We want to see how hydrogen might blend into the system and serve as a stand-alone fuel in the future.”