Curse or Blessing?

OIL & GAS

In a hullabaloo of argument, President Truman tried to make up his mind last week whether he should sign or veto the Kerr gas bill (see NATIONAL AFFAIRS). The bill's opponents loudly damned it as the biggest raid by "special interests" since Teapot Dome. Just as warmly, the bill's backers called it indispensable for the further growth of the natural gas industry.

The big oil and gas companies, who had championed oil-rich Senator Robert Kerr's bill for all they were worth, marshaled some potent arguments on their side. Despite all the political uproar, they pointed out that the bill, which exempts "independent" gas producers from the price-fixing control of the Federal Power Commission, merely repeats and clarifies a previous congressional action. The 1938 Natural Gas Act, in their opinion, had specifically exempted the independents (i.e., those gas producers and gatherers not affiliated with interstate pipeline companies) from FPC's jurisdiction. The U.S. Supreme Court had disagreed in 1947, when it ordered Louisiana's Interstate Natural Gas Co. to rebate nearly $600,000 on consumers' gas bills. It thereby virtually wrote a blank check for FPC to regulate the price of gas in the field whenever the gas crossed a state line for resale.

Instead of welcoming this power,

FPCommissioners urged Congress to pass a bill once more exempting the independents. Even the then Commissioner Leland Olds, a zealot for regulation, approved FPC's stand that it would not "assert such jurisdiction." Less than a year later, Olds and the commission changed their minds. In October 1948 they started proceedings against the natural gas 'affiliate of Phillips Petroleum Co., which has the biggest gas reserves of any independent gas producer, to test their power to fix the price of gas in the field.

Capped Wells. Phillips and the other oil companies feared the threat to fix their gas prices, but what they feared more was that FPC would use the authority it won over gas as a lever to try to declare the whole oil industry a public utility--and thus control oil prices and profits also. (Since gas is a byproduct of oil development, the big oil companies are also big gas producers.) The result was that many of the big producers refused to sell gas to the interstate pipelines. They pumped the gas back into the ground, sold it only within the state, or let it go to waste.

Although state authorities have tried to stop the waste, Oklahoma oilmen were still blowing off great quantities of gas last week rather than run what one oilman called the "tremendous risk" of FPC regulation. For the same reason, hundreds of gas wells have been capped, and new pipeline operators have found it hard to line up contracts for sufficient gas. The majority of those who did had to agree that the contracts would be canceled if FPC got control over gas prices. One result: out of the 5.7 trillion cubic feet of gas produced in the Southwest in 1948, only 1.2 trillion feet went through the interstate pipelines.

Capped Prices? Opponents of the bill, notably Illinois Senator Paul H. Douglas, argued that the lack of regulation would send gas prices soaring and boost consumers' bills $100 million a year. In answer, oilmen pointed to the record. In the last ten years the price of gas in the field has risen, in some cases quintupled (the price had been so low ten years ago that gas had virtually been given away). Yet the average price of natural gas to residential users had dropped from 70.9-c- per 1,000 cubic feet in 1939 to 63.5-c- in 1948. Even if the Kerr bill becomes law, the rates charged by transmission companies and utilities will still be regulated by FPC or state utility commissions.

Charles I. Francis, vice president of Texas Eastern Transmission Corp., pooh-poohed the talk of immediate price rises. Said he: "The public will, benefit by lower gas prices."

As long as the current gas surplus exists, oilmen contended that gas prices, even in the field, would not rise much. Eventually, they probably would. Said Gordon W. Reed, chairman of small-sized Texas Gulf Producing Co.: "Where the price of gas will end, no one can predict right now, but it is definitely going to reach its economic level. Prices to producers in the Southwest could go up another 5/ or 6/ a thousand cubic feet [roughly 55%] without affecting consumers' prices- in the North."

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