Why once-cheap natural gas costs more now
The clean heating fuel - natural gas - is becoming something of an expensive mess for many consumers. Because of a ruling by the Federal Energy Regulatory Commission last week, natural gas users can expect a 2.5 percent added increase in gas prices this year. The rise comes on top of a 5.8 percent increase projected by private economic forecasters who monitor the industry.
The Department of Energy, however, has estimated that gas prices during the winter heating season could go as high as 25 percent above last year's levels.
''The ruling has significant impact,'' asserts Rachelle Patterson, a spokeswoman for the commission. ''It could mean an additional $3 billion-a-year [nationwide] price increase, beginning in May, for the next two years.'' After 1985, the yearly increase is expected to drop to $1.8 billion.
The commission unanimously ruled that gas pipeline companies would be allowed to pass certain production-related costs on to gas users. The costs would be expenses linked to the gathering, purifying, and compressing of gas. ''Now, producers are eating this cost,'' says Ms. Patterson.
Last week's ruling, which translates into about $12 more per home gas bill per year, will not in itself have that much of an impact, but ''it is one in a series of cumulative increases that is hurting consumers,'' says Edwin Rothschild, spokesman for the Citizen Labor Energy Coalition in Washington D.C. ''It may not mean much to the $40,000 income, but it will put the $5,000 to $10, 000 earner farther behind in gas payments.''
Rothschild also pointed out that people living in California, Texas, Florida, Louisiana, and Oklahoma will see their electric bills go up, too. In these states, electric utilities rely on gas for their energy.
For the last three years, gas prices have been increasing by roughly 17 percent annually. In 1982, prices increased 22.3 percent over 1981.
There are a number of reasons for the steadily upward flow of gas prices, says George Friesen, director of fuels price forecasting for Chase Econometrics. The most complex of these, he points out, is the Natural Gas Policy Act (NGPA), which Congress passed in 1978. The act calls for the lifting of price controls from gas found deep in the earth, but continues regulation of all other gas. New gas - gas found after the passage of NPGA - will be deregulated in 1985. Eventually full deregulation will take place as old, regulated gas gets used up.
Because there were no longer any price controls on deep gas with passage of the law, producers increased exploration and drilling for this gas. Deep gas is also the most costly to produce, and hence the highest priced.
The NPGA has caused distortions in gas price, says John Lichtblau, head of the Petroleum Industry Research Foundation, an independent study group.
In an interview with Exxon USA magazine, Mr. Lichtblau stated, ''We have gas selling for as little as 50 cents per thousand cubic feet in some fields and for as much as $9 per per thousand cubic feet in other fields.'' Depending on the mix of gas that pipelines carry, and how far they have to carry it, users in some regions have to pay more than users in other regions.
''Another reason behind higher prices is 'take and pay' agreements between pipelines and gas producers,'' says Mr. Friesen. During the mid-70's, when there was a shortage of fuel, pipelines signed long-term contracts with producers of gas - including expensive deep gas. Because of the agreements, the pipeline companies still have to buy that gas, even though they may not need all of it right now.
Natural gas demand has been dropping, so ''the pipelines can't sell all the gas they've contracted for, and that means they have to distribute that cost through higher prices,'' Friesen explains.
Industry analysts expect the ''take and pay'' clause to be altered by Congress this year, which to some degree accounts for this year's lower price increase projections.
Why has demand dropped? Higher gas prices have prompted residential consumers to cut back on use. And much of industry, which has the capability to switch back and forth between oil and gas, has made the switch back to less expensive oil. Added to these factors is the recession: there are less plants in operation, so less gas is burned. ''This leaves us in a bizarre situation of excess supply and high prices,'' Friesen says.
Meanwhile, the effects of the higher prices from the commission's action will be more people unable to pay gas bills, says Mr. Rothschild. For the low-income bracket, $1.8 billion in federal funds is available for energy assistance this year. During the lame duck session of Congress, another $100 million was authorized, though it hasn't been appropriated yet. ''This is hardly capable of meeting the need,'' he argues.
In southern California, the private sector has taken some initiative. The United Way, together with two gas utilities, announced last week a $4.6 million subsidy program for low-income residents. The American Gas Association says there are about 30 similar projects around the country, but they aren't focused in the large cities.
The ruling by the commission is expected to go into effect this spring, so it will not apply to this winter's heating bills.