Gas industry sees decontrol as key to avoiding shortages
Warning that the United States risks a repeat of natural gas shortages that closed schools and factories during the winter of 1976-77, the gas industry is calling for quick congressional action to eliminate federal price controls on natural gas.
Transco Energy Company chairman W.J. Bowen says he expects gas demand to pick up sharply with economic recovery, making the discovery of new sources vital. Transco, which has piped vast amounts of natural gas to Eastern cities from the Texas-Louisiana coast since 1951, currently is engaged in an aggressive, costly exploration program. The firm also is trying to lure large industrial customers away from oil by offering them natural gas at discount prices.
But without the economic incentives provided by immediate and total deregulation, Mr. Bowen and other industry officials argue, exploration efforts can't continue. Reduced exploration for domestic supplies, industry leaders warn , could turn today's natural gas ''glut'' into a shortage within two to five years.
Major energy companies favor a Reagan administration package of new natural gas policies now being debated by the Senate Energy Committee. This legislation would end all natural gas price controls by Jan. 1, 1986. Under the current Natural Gas Policy Act of 1978, price controls on gas discovered after 1977 are scheduled to end in 1985. But the act retained controls on previously discovered ''old gas'' - about half of the current supply - to moderate the impact of decontrol. As the old gas is used up, the amount of gas covered by federal price controls will decline.
The President's decontrol package also includes provisions designed to eliminate long-term ''take-or-pay'' contracts, which have locked purchasers into buying fixed quantities of high-cost domestic and imported gas whether they later needed it all or not. Under the proposed legislation, beginning Jan. 1, 1985, existing contracts for natural gas would lapse and open the way to renegotiate terms on the basis of market conditions.
The administration proposal to decontrol old gas along with new has stirred up bitter opposition among consumer groups and frost belt congressmen.
According to studies released by the grass-roots Citizen/Labor Energy Coalition and the Consumer Federation of America, deregulating old gas would provide immense ''windfall profits'' for a few major energy companies while dramatically driving up consumer prices. Sen. Howard Metzenbaum (D) of Ohio, who shares these concerns, is cosponsoring legislation to extend the 1978 act's controls rather than dismantle them. Warning that deregulation could lead to steep price hikes and ''stifle the recovery,'' he threatens to filibuster any deregulation bill.
There is general agreement among experts on both sides of the issue that natural gas prices will rise under immediate decontrol, although estimates of price increases vary widely. But gas industry officials say they are just as concerned about high gas prices as consumers. They are concerned that if gas prices rise too high too quickly, US industries will lose the economic incentive to continue converting oil-fired boilers to natural gas.
Under immediate decontrol, industry analysts argue, the rate of increase in prices will be much slower than if prices remain controlled. Heritage Foundation energy analyst -Milton Copulos estimates that, under Senator Metzenbaum's proposal, the first year of extended price controls ''would mean a $32.8 billion , or 24 percent rise in the nation's natural gas bill. . . .''
The American Petroleum Institute (API), a research organization linked to the oil industry, estimates that ''the potential savings in residential gas bills alone would exceed $100 million'' if gas were decontrolled today. This figure is based on the assumption that as the US found more domestic supplies, it would cut back on more expensive imported gas.
According to the US Energy Information Administration, imports supplied 5.3 percent of US natural gas consumption in 1982. This represented a 7 percent increase in imports over 1981. This increase in gas imports, primarily from Canada, Mexico, and Algeria, coincided with an 8 percent decline in US gas production.
Transco's Bowen and George P. Mitchell of Mitchell Energy and Development Corporation insist that lifting price controls would encourage exploration and production. The API forecasts that full gas decontrol this year would provide economic incentives leading to US production of an additional 2 trillion cubic feet of natural gas a year by 1985.