To refreeze or not to refreeze natural gas prices: public waits warily
Both sides of the natural gas debate say that prices probably will climb steeply this winter. But agreement stops there.
In response to congressional attempts to freeze natural gas prices, the Reagan administration's new Energy Secretary, Donald Hodel, says he's ''satisfied that if you pass a freeze on prices for a year or two, we will guarantee a gas shortage down the road.''
Edwin Rothschild, director of the Energy Action Project of the Citizen-Labor Energy Coalition, says of Mr. Hodel's warning: ''There is no basis on which to make that claim, because the prices that will be frozen are high enough to provide sufficient incentives.''
Mr. Rothschild, whose group represents some 300 consumer-oriented organizations, says, ''This winter will see severe increases in natural gas prices, ranging from 20 percent . . . up to 70 percent in southern California.'' He adds that ''the really serious problem is that people can't afford to pay their bills.''
He expects that congressmen will respond to public pressure by freezing prices or at least extending price controls on natural gas when the new Congress meets in January. Sen. Thomas Eagleton (D) of Missouri is pushing hard for a two-year price freeze, charging that ''most of the money paid every month in gas bills is padding the pockets of a few producers.''
But one key congressional committee expert on energy issues argues that current excess supplies of natural gas and crude oil are temporary and that national energy policies should focus on the long-term risk of shortages. ''We face the potential of moving back into a repeat of 1973 or '79,'' he warns, explaining the current glut could vanish.
This staffer says he expects no significant congressional action on US energy policies. Despite a long list of proposals little action is likely, he says.
Current excess supplies have caused some observers such as Hassain Najadi, chairman of the Arab Asian Bank, to forecast stable or even falling world oil prices. One basis for this view is that current output of the Organization of Petroleum Exporting Countries (OPEC) has tumbled to less than 19 million barrels a day, well below its past 31 million-barrel output. This amount of proved excess OPEC capacity, added to recent discoveries such as a new field off the California coast, indicates that supply may continue to exceed demand for several years at the very least.
Some OPEC forecasts discount the impact that the world recession has had on world oil demand. They credit Western countries with making major permanent strides toward reducing oil demand through conservation and the use of alternative energy sources such as coal and nuclear power. In this view, world oil demand may increase only slightly when the recession ends.
But George P. Mitchell, founder and president of the Houston-based Mitchell Energy & Development Corporation, estimates that the slump in world energy demand is 70 percent due to recession and only 30 percent due to conservation and fuel switching. Speaking at a recent seminar here, he said that when the US recession ends, the surge in energy demand could push US oil imports back up from less than 5 million barrels a day to more than 7 million.
To avoid returning to import dependence, Mr. Mitchell urges increasing US oil drilling to 100,000 wells a year, up from 1981's 79,000 wells. The veteran petroleum geologist says the US has vast potential reserves of oil and gas. And, he says, the US has the expertise to drill 100,000 wells a year and improve the nation's production substantially.
Geologist William L. Fisher, director of the University of Texas at Austin's Bureau of Economic Geology, agrees with Mitchell's warnings. He says that US regulation and taxation have ''drained off funds'' that the oil industry otherwise would ''plough back into exploration.'' He says that federal policies have reduced domestic drilling programs and reduced oil and gas production with the result that ''if and when another embargo or supply disruption occurs, the impact will be more severe.''
Mr. Fisher says he would like to see the windfall profits tax on oil production abolished ''for the simple reason that this would . . . reduce (foreign oil) imports.'' He says increased revenues to the oil industry would not only promote the discovery of new fields but ''rather than the existing 33 percent recovery efficiencies, intensified drilling and . . . new technologies would increase recovery substantially.''
Milton Russell, a senior fellow at Resources for the Future, a Washington think tank, says that ''the most critical energy problem for the United States today is the insecurity associated with the importing of foreign crude oil.'' He says that this insecurity has been increased by energy policies that ''reduce the financial incentive to drill'' and thereby reduce US oil and natural gas production.
Dr. Russell says that US energy policies should recognize that the so-called oil glut is a temporary phenomenon. He warns that ''ultimately we are going to have a reduction in productive capacity and an increase in world demand.''