Like much of the southern United States, Oklahoma endured frigid conditions for two weeks in February 2021. In addition to all the burst water pipes in people’s homes, a number of smaller municipalities across the state got stung by extremely high natural gas bills – from $4-$5/MMBtu in a normal winter, Storm Uri led to several days where natural gas ran at $1,000/MMBtu and higher. Most of these communities cannot easily afford such exorbitant bills and many lawsuits have been initiated over failure to pay or non-performance by suppliers.
In order to help city managers, supervisors and public works superintendents get a stronger grasp of how natural gas is supplied, stored, distributed and priced, Collins College of Business Professors Tom Seng and Buford Pollett recently developed and ran educational seminars in Glenpool and Woodward.
In search of profitable and sustainable distribution systems
These seminars were requested and sponsored by the Oklahoma Municipal Assurance Group (OMAG), which provides property and casualty insurance for 500 towns and cities in the state, including Muskogee, Bartlesville and Ponca City. Approximately 50 smaller Oklahoma municipalities – from Guymon and Tuttle all the way down to tiny Ramona and Burbank — operate their own natural gas distribution systems. These communities typically do not employ specialized staff to oversee those systems. Yet, such systems play a large part in enabling them to fund their municipal operations.
“OMAG’s goal is profitable and sustainable natural gas distribution systems with less uncertainty and better positioning to exploit opportunities,” said Bill Tackett, OMAG’s director of strategic initiatives. “This follows our belief that the best-run cities and towns have risk exposures that are less severe and less frequent in nature, which also promotes a higher quality of life for their citizens.”
In discussions with OMAG clients, Seng and Pollett found that most, if not all of OMAG’s cities and towns have little understanding of the workings of the natural gas marketplace. “To some extent,” Seng remarked, “that leaves them at the mercy of more knowledgeable suppliers where they could potentially be taken advantage of.”
The power to make better decisions
Seng and Buford saw this awareness gap as an opportunity for the School of Energy Economics, Policy and Commerce to provide them with information about the natural gas industry that could help them in their procurement decisions in the future. “We also wanted them to understand better the events of last February as this winter approaches,” noted Pollett.
One of the brass tack challenges is that larger communities have greater purchasing power when it comes to natural gas procurement. The relatively small volumes most of OMAG’s clients consume impose more administrative burdens on the suppliers who charge a premium for such services. However, that sometimes can lead to a lack of attention to these smaller accounts which, when prices become historically high, can be very costly for these cities and towns.
According to Seng, who traded natural gas in the mid-continent region for most of his career and has worked for natural gas transportation and storage companies, “despite natural gas procurement being a small portion of the duties of those managing Oklahoma’s smaller municipalities, they need to understand both the marketplace and supply chain.” They also require a “deep understanding of the industry’s standardized agreements for the purchase/sale of natural gas, transportation and storage, and pipeline and utility tariffs for service.” Meanwhile, as a lawyer licensed to practice in Oklahoma, Pollett was able to bring to the seminars his extensive knowledge of the detailed provisions of such standardized agreements.
“OMAG is thankful to Tom and Buford for sharing their valuable knowledge in the areas of price discovery, nomination, storage, contracting and the roles and responsibilities of natural gas providers,” said Tackett. As a next step, OMAG will explore with these two experts how to build on the seminars in order to strengthen further the business operations of Oklahoma’s municipal natural gas distribution systems.
Safe, reliable, affordable and sustainable energy for the future: If you’re interested in a career in this growing, profitable sector, check out all the educational pipelines on offer at TU’s School of Energy Economics, Policy and Commerce.