Rising gas prices: What should be done?

Just when gas producers are gearing up for a new campaign to decontrol prices , some utility companies and congressmen are trying to freeze natural gas prices.

Assuming no federal price control changes, the Department of Energy (DOE) forecasts a 19 percent rise in natural gas prices this winter compared with last winter. The increase is part of a gradual natural gas deregulation program adopted by Congress in 1978.

The prospect of higher gas prices outrages Rep. Robert Young (D) of Missouri, who says, ''I've got people in my area right now paying gas bills that are bigger than their house notes.''

His answer has been to introduce two bills designed to freeze natural gas prices immediately and then allow prices to climb only in line with increases in production costs.

Lee Lieberman, chairman of the Laclede Gas Company of St. Louis, agrees with Congressman Young that the 55 percent of Americans who heat their homes with gas pay too much already. Along with other utility executives, he also warns that gas price increases are driving industrial users to other fuels. This switch boosts residential gas bills because fewer users share the costs of operating the gas distribution system.

But gas producers here in Texas and industry groups such as the American Petroleum Institute argue that Young's threat to extend natural gas price controls risks plunging the United States back into a serious shortage. The industry argues that government controls deny the incentives to develop new supplies, which will be needed within another few years. Accordingly, once the 1982 election results are in, most industry groups say they plan to push hard for early congressional action in 1983 to let the free market set natural gas prices for the first time in nearly 30 years.

Advocates of a gas-price freeze charge that something is badly wrong when natural gas prices rise steadily despite an oversupply currently estimated at 6 billion to 8 billion cubic feet of daily excess capacity.

''At a time of huge gas surpluses,'' says Edwin Rothschild of the consumer-oriented Energy-Labor Coalition, ''and at a time of deep recession when gas consumption has dropped, a 19 percent jump in prices is ludicrous.''

Rep. John Dingell (D) of Michigan, chairman of the House Energy and Commerce Committee, warns that ''the economically battered Midwestern consumer'' is being threatened with ''unconscionable and outrageous price increases.''

Most observers say the apparent contradiction of price hikes combined with excess supplies is the result of the Natural Gas Policy Act (NGPA) of 1978. Congress drew up this compromise act in response to the natural gas shortages that closed factories and left many homes and schools cold during the winter of 1976-77. To encourage more production, Congress planned to jack up natural gas prices, which had been held artificially low under government regulations dating from 1954. Prices were scheduled to outpace inflation and catch up with oil prices by 1985. But Congress acted under the assumption that crude oil prices would hit $15 a barrel in 1985, less than half today's $34 level.

Because crude oil prices have climbed far faster than anticipated, consumer groups now want to stretch the NGPA transition period to avoid a sudden natural gas price ''spike'' in 1985. In reply, gas industry spokesman argue that the answer is to deregulate immediately because current low demand would prevent any major price escalation.

Natural gas producers say that low natural gas prices create too little incentive for undertaking the drilling needed to meet anticipated future demand. Transcontinental Gas Pipe Line Company vice-president C. H. Mullendore warns that without quick corrective action, the United States will swing from a natural gas surplus to another severe shortage during the 1980s.

One of the many complications that could hinder congressional action, however , is that even gas producers are divided. Deep gas - drawn from below 15,000 feet - is not regulated under the NGPA. This gas has been sold for premium prices. Therefore, some deep-gas producers defend current policies.

Political scientist M. Elizabeth Sanders, an expert on natural gas policies at Rice University in Houston, says that the NGPA ''has created this crazy situation where we have some deep gas selling for $10 a thousand cubic feet while some interstate companies have a cushion of old gas they're still buying at a tiny fraction of that price.''

Professor Sanders says that ''almost all economists have argued for the last 20 years that you simply get much more reasonable fuel supply and pricing with no regulation at all.'' She concludes that government agencies ''just don't have the expertise to regulate.''

Nonetheless, she says she expects Congress to opt for more regulation, not less, ''because there's too much consumer pressure for Congress to accept deregulation.''

A DOE official dealing with natural gas issues says industry pressure for deregulation is intense and increasing. But he expects that partial deregulation will take place in 1985 as scheduled by the NGPA - no sooner and no later.

This official says consumer pressure for extending federal controls will diminish as the message gets across that the current oversupply is temporary and therefore steady price increases are justified. Once the excess disappears, he adds, so will the ''distortion'' that currently forces the industry to shut off production from low-cost gas wells while drawing both on high-cost deep gas wells and importing high-cost gas from overseas.

The DOE official also expects that ''once producers realize that this administration is not going to change policies, they will be able to plan for the future and come back into exploration strongly.''

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