That Other Shortage

With oil problems taking all the headlines, it is easy to forget that the U.S. is also short of its second most important fuel: natural gas. But the fact is that a gas gap preceded the oil shortage. Indeed, because some industries have switched from virtually unobtainable gas to merely scarce oil, one shortage has actually aggravated the other. Right now, natural gas still accounts for 33% of U.S. energy consumption, powering thousands of factories and heating 40.1 million, or 53% of the total homes. Some of those users must do without because, the Federal Government estimates, the present supply of natural gas trails demand by at least 5%. Why, then, is more attention not being paid to this serious problem?

The main reason is that no one knows what to do about it. The Federal Energy Office's policy of keeping industries well supplied with oil, while asking homeowners to cut back their use, simply does not work with natural gas. Gas companies have traditionally interrupted (or shut off) gas to industry rather than deprive homeowners. Nor is rationing possible; because pressure in the pipeline has to be maintained or shut off, the consumer either gets to use what he wishes or gets nothing. That makes for hard choices in allocating dwindling supplies. In Paola, Kans., last month, the local gas company chose to stop servicing the town's elementary school for three weeks. On the last day of school before Christmas vacation, classroom temperatures plummeted to 42DEG.

Rather than wait for the same thing to happen in other communities, federal planners are considering a new tax in order to discourage "excess use" of natural gas by homeowners. The tax might apply to all purchases above 90% of last year's usage. While such a measure would surely help to conserve the fuel, Congress has shown no enthusiasm for it. The lawmakers are not anxious to offend all those homeowners. Moreover, the tax would not get at the basic problem: pricing policy.

The present price troubles go back to 1954, when the Supreme Court ruled that the Federal Power Commission must regulate interstate sales of natural gas in the best interests of consumers. The Justices were anxious to avoid monopolistic pricing practices by producers. The FPC finally set areawide, very low ceiling prices on natural gas. Today, 1,000 cu. ft. of gas costs, on the average, only 22-c---the equivalent of pricing a barrel of oil (which now sells for at least $5.25) at 72-c-.

As a result, gas producers have little incentive to explore for, or open up, new reserves of the fuel. Exactly how the situation stands is hard to determine, because the only figures available come from the industry--and thus might be, critics charge, grossly understated. But with the single exception of 1970, when much gas was reported together with oil on Alaska's North Slope, discoveries for several years appear to have run alarmingly far below consumption. Proved reserves have dwindled--according to the industry. The shortage has also affected air quality. Natural gas is the most environmentally acceptable of fuels, since it releases few pollutants when burned. Many fume-filled East Coast cities would be glad to pay a premium for natural gas--if only they could get it.

The obvious solution is deregulation. But such action could create enormous windfall profits for owners of producing wells. Illinois Senator Adlai E. Stevenson III, who presided over Commerce Committee hearings on the issue last fall, sums up the situation: "The industry claims that present regulations are unworkable. The consumers consider total deregulation unthinkable."

Soaring Prices. The only practical solution is to deregulate partially, but how to do that remains debatable. President Nixon last spring urged Congress to exempt newly discovered finds of natural gas from FPC regulations. Such decontrol would greatly encourage gas-producing companies to find new deposits--and according to the U.S. Geological Survey, there are potentially some 1.2 quadrillion cu. ft. of reserves in the ground waiting to be tapped. The consumer would not suffer too much immediately, since the cost of new gas would be averaged in with the cost of existing supplies. But in the long run, deregulation would send gas prices skyrocketing. At least partly for that reason, big gas producers are not beginning to exploit huge new finds in the Gulf of Mexico. Instead, they are waiting for the bonanza of eventual deregulation.

How high might natural gas prices go? Some economists predict prices of 600 to 700 per 1,000 cu. ft. Another indication comes from agreements that U.S. companies have made with Algerian producers to manufacture liquefied natural gas and ship it in special tankers to the East Coast. Estimated price to the consumer: about $1--or almost 500% more than a householder now pays. As chances of saving the last remaining fuel bargain dwindle, the lesson is doubly clear: the era of cheap energy is indeed fast drawing to a close.

This file is automatically generated by a robot program, so viewer discretion is required.