Decontrol Prepares for Lift-Off

By Christopher Byron

The Reaganauts take up the issue of natural gas prices

When it comes to riling Congress, few methods are more effective than calling for deregulation of the price of natural gas, the fuel that 55 million American families use to heat their homes or cook their meals. President Jimmy Carter learned that four years ago, when he pledged to work toward the phasing out of natural gas pricing regulations in his 1977 energy address to Congress. For 18 months, Congress squabbled over the gas question and held up passage of the entire energy legislation package. Now Ronald Reagan is preparing to take up the issue all over again, and the congressional reception is proving to be no better for him than for his predecessor.

During the 1980 presidential campaign, Reagan repeatedly called for gas decontrol as a way to boost exploration and supplies and cut dependence on foreign imported crude. When word leaked last week that the Administration intends to make good on that pledge, Congressmen reacted strongly. Warned Senate Democrat Howard Metzenbaum of Ohio, who led the filibuster against the decontrol bill four years ago: "This body will be in session for a long time if the Administration decides to decontrol natural gas." Added Idaho Republican James McClure, chairman of the Senate Energy Committee: "Pressing for decontrol and getting it are two different things. I do not expect Congress to pass it this year."

Leading the drive to free natural gas prices is David Stockman, the Director of the Office of Management and Budget. As the strongest voice in the Cabinet on economic matters and a committed proponent of letting market forces work as freely as possible, Stockman so far is overshadowing Reagan's Secretary of Energy James Edwards as chief Administration counselor on energy policy.

The starting point for any decontrol measure is the incredibly complex natural gas pricing system that now exists. Natural gas prices have been controlled at low levels by the Federal Government since 1954. In his 1977 bill, Carter initially sought to raise gas prices until they were equivalent, in terms of energy produced, to those of domestic oil. But the bill that was finally passed by Congress in November 1978 was a complicated compromise between gas producers and consumers that set up 23 separate pricing categories for the fuel. All old gas--generally defined as that discovered prior to April 20, 1977--will reach a projected maximum price under controls of $1.60 to $1.90 per thousand cu. ft. in 1985. Gas discovered in subsequent years can be sold at higher prices, reaching a projected maximum of about $4.54 per thousand cu. ft. at the wellhead in 1985. From that date onward, any additional discoveries will fetch the prevailing world market price.

The result of the 1978 law has been a labyrinthine torture chamber for gas producers. Under some long-term supply contracts that were written many years ago and are still in force, many producers are being compelled to sell gas for less than 30-c- per thousand cu. ft., even though the current ceiling price is about $2.64 per thousand cu. ft. Meanwhile, foreign suppliers like Mexico and Canada earn $4.82 per thousand cu. ft. and $4.47 per thousand cu. ft., respectively, for the gas they ship to the U.S. market.

Natural gas producers, who would earn stunning profits from decontrol, strongly support the Stockman proposals. They point out that raising the regulated price in 1978 brought about a boom in new gas drilling and discoveries. Unlike the winter of 1976-77, when the U.S. suffered through a severe shortage of the fuel, there is now a small natural gas glut. Furthermore, the price levels set in the 1978 act are badly out of date because of the oil cost increases after the Iranian revolution. Says C. John Miller, president of the Independent Petroleum Association of America: "We ought to have natural gas price decontrol immediately because we need the supplies of gas that would result."

On the other hand, the pipeline companies that transport the fuel and the utilities that burn it are just as strongly opposed to decontrol. Says Richard L. O'Shields, chairman of Houston's Panhandle Eastern Pipe Line Co., which both produces and transports natural gas: "Precipitous deregulation would result in confusion and chaos in the market for up to five years. The current act is working well in spite of its complexities, and we see no need to amend it."

Critics of decontrol maintain that because the lifting of price restrictions would result in a sharply higher cost for natural gas, the action might even increase American dependence upon foreign oil producers. According to a study by the American Gas Association, the pipeline and distribution industry trade group, the removal of all controls would send up gas prices to consumers by about 100% by 1982. During the first year alone, this would cost consumers upwards of $60 billion, as prices jumped on everything from home heating bills to products made by factories that rely on gas for fuel. Moreover, the association estimates that so many businesses and families would, therefore, convert from gas to oil-fired heating systems that petroleum imports would jump by 800,000 bbl. per day over and above the 6.3 million bbl. daily that the U.S. currently imports. Says one Department of Energy official: "If the Administration decides to go ahead with full decontrol, the shock will be sudden and probably pretty painful."

When the Administration begins to discuss the effects of decontrolling natural gas prices, it will face a skeptical public. In late January, Edwards confidently proclaimed that the President's decontrol of domestically drilled crude oil would add only 3-c- to 5-c- to the price of gasoline at the pump. But since the beginning of February, the price of the fuel has jumped by almost 10-c-, to an average $1.42 per gal. for unleaded regular. If the decontrol of natural gas sends prices leaping as sharply, the Administration may wind up wishing that it had never mentioned the subject in the first place.

-By Christopher Byron. Reported by Gary Lee/Washington and Robert C. Wurmstedt/ Houston

With reporting by Gary Lee, Robert C. Wurmstedt

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