WATCHING WASHINGTON FOCUS ON GAS RELIABILITY

A milestone in the history of the U.S. petroleum industry passed Jan. 1, when the last price controls on natural gas production were finally phased out.

The controls meant little because more than 95% of all gas sold last year brought prices less than legal ceilings.

A LEGACY OF CONTROLS

But gas price controls once had a profound effect on industry. They were imposed after the Supreme Court ruled in 1954 that the government could regulate interstate gas prices back to the wellhead.

Suppressed gas prices eventually restricted supplies, leading to shortages during winters in the mid-1970s.

Congress responded with the 1978 Natural Gas Policy Act, which created 26 tiers of gas prices depending on the source and vintage of production. It did nothing to increase conventional supplies.

When NGPA decontrolled some gas categories in 1985, consumers feared prices would rocket. Instead they dropped, giving Congress confidence to pass the Wellhead Decontrol Act in 1989, which provided phased decontrol of all gas production.

The Natural Gas Supply Association says since 1984, the last full year of price controls, wellhead gas prices have dropped from $2.66/Mcf to $1.59/Mcf in 1991. Adjusted for inflation, that's down 54% in 7 years.

During the same period, prices for consumers at the other end of the pipeline fell from $4.85/Mcf to $4.19, a 30% drop when adjusted for inflation.

These days the gas industry has had ample reasons for optimism: Market pricing for production, the Federal Energy Regulatory Commission's drive to reduce its rules and inject competition in the pipeline industry, and optimistic growth projections for the clean burning fuel.

Yet clouds remain. Gas marketers have been meeting resistance from those who remember shortages.

Major gas associations have formed the Natural Gas Council to promote gas use. They are considering going a step further, creating a Natural Gas Reliability Council to enhance gas service and increase customer confidence in the fuel.

NPC ANALYSIS

A massive National Petroleum Council study recently predicted robust gas supplies but recognized the industry's image problems (OGJ, Dec. 28, 1992, p. 106).

NPC said, "Gas reliability is of concern to all sectors of the industry and in particular to the electric utility and industrial customers, who have unique operational requirements. Concerns encompass price volatility as well as supply and pipeline deliverability.

"Reliability has different meanings to different people and perceptions are often as important as facts and analyses.

"It is, therefore, imperative that industry openly address the reliability issue to ensure that natural gas is best able to compete effectively in the nation's energy markets."

Nicholas Bush, NGSA president, agrees: "These days the gas industry is focused on one issue and one issue alone: reliability. We must prove we can be reliable suppliers."