WATCHING WASHINGTON GAS DECONTROL: 1 YEAR LATER

with Patrick Crow On July 26, 1989, President Bush signed a bill that launched the U.S. natural gas industry on the road to full decontrol of wellhead prices. Judging from events, gas decontrol has been a nonevent. And that, producers say, is proof of its success. The action has been vindicated by the fact that, despite concerns of consumer groups, gas prices have fallen in the past year.

July 23, 1990

3 min read

On July 26, 1989, President Bush signed a bill that launched the U.S. natural gas industry on the road to full decontrol of wellhead prices.

Judging from events, gas decontrol has been a nonevent. And that, producers say, is proof of its success.

The action has been vindicated by the fact that, despite concerns of consumer groups, gas prices have fallen in the past year.

The legislation permitted free market prices for all new production, along with price decontrol as existing contracts are renegotiated. Price controls, as set by the 1978 Natural Gas Policy Act, will be fully repealed Jan. 1, 1993.

WHAT INDUSTRY THINKS

Mark Seifert, an energy regulation specialist with the Independent Petroleum Association of America, says the effect of decontrol has differed for various producers.

He said, "Independents see it as a long term improvement, but there has been no real short term benefit that we can see."

Gas prices have limited industry to drilling coal seam gas, Devonian shale, and development wells, Seifert said. Very few dry holes are being drilled, "a bad sign because it means nobody is doing exploratory drilling."

Seifert said, "Instead, the industry looks like one big used car lot with everybody buying and selling reserves."

Michael Baly, executive vice-president of the American Gas Association, said, "For the first time in the history of our industry and the country there are more gas rigs working than oil rigs.

"Decontrol has made for a healthier industry because it has linked the producer with the marketplace. It will enable us to produce old gas fields longer and put compression on them so we can recover a higher percentage of gas."

Baly said low wellhead prices may be bad news for producers now, but "as the price signal goes up in the future, it will attract producers to gas drilling, just as price controls in the 1970s drove producers from exploring for gas to seeking oil."

REORIENTED THINKING

Nicholas Bush, president of the Natural Gas Supply Association, said, "The major impact of decontrol was that it reoriented everyone's thinking."

He said enactment of decontrol occurred at a time when many producers were renegotiating contracts. "In effect, producers had to examine what kind of price clauses were going to be applicable in the future and how to come up with a way of pricing gas that would be relatively competitive with other fuels and other gas."

Bush called decontrol essential for a healthy gas market. "It's better to try to get a clear signal as to what the markets will give for your product so you have some idea of whether you have an economic investment at the other end."

The past year also has shown that delaying full decontrol until 1993 was "silly," Bush added. "In retrospect, we could have deregulated immediately without any impact."