The American Gas Association has rebutted complaints that natural gas prices have dropped at the wellhead but not at the burner tip.
AGA Pres. Mike Baly said an association study of the issue found that all classes of customers paid less for gas in 1991 than they did in 1984, when gas prices were at their peak.
He said, "The study also shows that 100% of the wellhead price decline has been passed through to natural gas consumers in the form of lower retail prices."
Baly said the average cost of gas delivered to all customer classes fell by $1.12/Mcf from 1984 to 1991, which exceeds the $1.10/Mcf decline in average wellhead prices during the same period.
"Pipelines and utilities do not make money on the cost of gas," Baly said. "Their earnings come from the cost of service: delivery, maintenance, metering, supply planning, and other customer services they offer.
"The fact that the retail price of natural gas has dropped over the last 8 years means that pipelines and utility companies have become much more efficient in their delivery of services."
PRICES BY CATEGORY
The AGA study found the price of gas delivered to industrial users fell by about $1.71/Mcf from 1984 to 1991.
Baly said, "This decline in gas prices saved U.S. industries more than $12.5 billion in 1991 alone, thereby improving the competitive position of domestic manufacturers. Without these savings in energy costs, manufacturing employment would have been reduced by as many as 15,000 jobs, and the goods produced would be more expensive."
He said the cost of gas to power generating plants fell by $1.53/Mcf from 1984 to 1991, saving consumers nearly $4 billion in electricity costs.
Residential gas prices fell 28/Mcf since 1984, and when inflation is considered, the reductions are even more significant.
"General inflation increased the consumer price index by 31% from 1984 to 1991," Baly said. "If gas prices tracked inflation, the average residential price today would be higher by about $1.90/Mcf. Instead, it's lower by 28."
Two factors limited the price decline for the residential sector.
"First," Baly said, "residential customers buy gas when it is most in demand and thus most expensive. Nearly 50% of residential demand for natural gas occurs in the coldest 3 months of the year: December, January, and February. Access to firm, secure supplies during the heating season commands a somewhat higher price. The decline in the wellhead price of gas was largest during the summer and smaller during the winter."
He said the second factor is the benefit to the residential sector from large volume industrial and electric utility customers sharing in the fixed costs of operating the gas systems.
"Today, because energy markets for these large customers have become extremely competitive among all fuels, the contribution of these large customers to fixed costs on gas systems has been reduced, so gas can compete with other fuels.
"State regulators generally have encouraged this because keeping the large customers on the gas system results in benefits for all ratepayers."
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