Supply & Demand

Since 1954, when the U.S. Supreme Court gave the Federal Power Commission jurisdiction over the price of interstate gas at the wellhead, U.S. gas producers have fretted over the specter of federal price-fixing. While waiting for congressional relief, several -big operators simply capped their supplies or searched for smaller intrastate markets. But last week a pair of big, tough-minded companies found a way out through the age-old law of supply and demand. The companies: CATC (Continental Oil, Atlantic Refining, Tidewater Oil, Cities Service) producing combine and Tennessee Gas Transmission Co., both giants in the industry. Their prize: a $1 billion deal involving 6 trillion cu. ft. of gas, the first from offshore Gulf Coast fields and the biggest reserve ever committed in.a single swoop.

Last fall Tennessee Gas signed a tentative 20-year contract with CATC to buy its offshore gas starting with an initial price of 21.4-c- per 1,000 cu. ft. until 1962; at that time it would go up not more than 2-c-per 1,000 cu. ft. with similar increases every four years to a top level of 29.4-c-. For its part, Tennessee planned to spend $16 million for a 107-mile pipeline (55-c-miles of it underwater) to bring the gas from offshore wells to its main transmission line serving 13 states in the northeastern U.S.

But when the two companies submitted their plans, FPC turned them down. The price, said the commission, was too high. It pegged the gas at 17-c- per 1,000 cu. ft. and told CATC it could apply for a higher rate once the gas started flowing.

CATC refused. Once a contract is signed, it argued, there is no escape and no guarantee of a higher rate. Rather than sell at 17-c-said CATC, it would seek to dispose of the gas elsewhere than to Tennessee and the interstate market. But Tennessee Gas President Gardiner Symonds, who formed the company ten years ago and built it into the biggest U.S. gas carrier, is no man to let the gas he needs get away from him. He jumped into the fight on the side of CATC. Tennessee Gas pointed out that CATCs 21.4-c- price was not excessive. Because of the short pipeline, the gas would actually cost less than supplies from inland Louisiana wells charging 20-c- per 1,000 ft. Added Tennessee: only 4% of its customers, headed by the New York Public Service Commission, protested the 21.4-c- price; the others accepted it because they faced "the grim reality of suffering the loss of adequate natural-gas supplies."

Last week, by a 3-to-i vote, the Federal Power Commission reversed its earlier decision and approved CATC's 21.4-c- price, plus the escalator clauses. The lone dissenting commissioner argued that the principle of federal price control was more important than supplying U.S. consumers with all the gas they need. But the majority strongly disagreed: "The Tennessee Gas system is greatly in need of increased supplies of natural gas. In view of the great demand, the price consideration should not be made the prime determinant of what the public convenience and necessity requires."

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