SOME HOPEFUL NEWS FOR U.S. GAS

You wouldn't know it by the price, but much is happening in the U.S. natural gas business. Spot prices for the country's best compromise on issues of fuel supply, economics, environmental safety, and political acceptability remain in the $1.20-1.35/Mcf dumps. On other fronts, the news is better.

May 20, 1991

3 min read

Efforts have broadened to improve gas regulation and law. The Federal Energy Regulatory Commission this month heard testimony on what may be its next landmark rulemaking. The core issue, comparability of pipeline trans-service, encompasses problems FERC must solve if it is to finish its overhaul of the pipeline business.

In related action last month, FERC approved full fixed variable rate design for new pipelines in the Northeast. The move responded to concerns that the modified fixed variable design favored earlier put U.S. producers at a disadvantage to Canadian competitors. And it represented a step toward standardized tariff structures. The commission also is reviewing mechanisms-such as producer demand and gas inventory charges-to protect parties to long term contracts in the absence of take or pay.

CONGRESS JOINS EFFORT

Congress has joined the reform effort. It is examining gas initiatives in the Bush administration's National Energy Strategy proposal and alternative bills. Its attention to gas is significant. Ever since the political brawl that produced the Natural Gas Policy Act of 1978, lawmakers have been loathe to touch the subject. Yet NGPA hardly finished the job of correcting U.S. gas regulation and created problems of its own. FERC's recent legal difficulties testify to the need for improvements in the law.

The gas industry still reels from decades of fitful and misguided regulation. Until recently, the market had no realistic way of assessing its two main values: the fuel itself and the means of containing it and carrying it to the point of use. Indeed, the industry's commodity and transportation costing mechanisms still need work. That both FERC and Congress have turned to the task deserves applause.

So the fight is on. Segments of a characteristically segmented industry are promoting their usually conflicting interests. The system works that way. And the system can at last produce effective gas policy if lawmakers and regulators keep a few simple principles in mind.

POLICY GOALS

For the sake of national economic and environmental interests, government policy should encourage gas use. It should do so by removing obstacles to gas market growth, by letting the market set gas prices, and by further opening access to the transportation system. It should advance gas supply security by attending to vital producer interests such as access to prospects, buyers, and transportation service; freedom from taxes that discourage drilling investments; and rate regulation that guarantees fair commodity values at the wellhead. And it should complete efforts to transform the transportation system but ensure that pipelines forced into new competition aren't left with service obligations that hinder their abilities to compete.

As they pursue their interests at this new political crossroads, gas industry participants should remember a few principles, too. The fight will end. It probably will produce a new set of rules. Whatever the rules, gas has limited value without pipelines, and pipelines aren't worth much without gas. Producers, pipelines, marketers, and distributors need one another. They should use the current political tray to create a future in which they can amicably conduct business, believe in contracts, and share the prosperity that eventually will accrue to the country's most promising fuel.