Market forces easing natural gas prices
Natural gas users were supposed to get the price shock of their lives in the new year. Nearly half the nation's gas supply is being deregulated on Jan. 1, and many had feared that lifting controls would launch gas prices into outer space.Skip to next paragraph
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Now, most observers don't think the theory will prove out. ''Overall, the price of gas generally should certainly not accelerate and if anything, decelerate,'' says William Higgins, a natural gas analyst at Value Line Investment Survey in New York.
Marketing is becoming pivotal in this industry, and lower gas prices for some homes and businesses may in fact be ahead.
For instance, West Coast users who face monthly Pacific Gas & Electric bills could soon get a break. The San Francisco-based distributor of ''clean fuel'' has filed for a rate reduction of $192 million with its regulatory commission. Ron Rutkowski, spokesman for PG&E, says that if the commission approves the request, it would translate to a 2 percent cut in gas bills for residential users and a 7.5 percent reduction for industrial users.
Most of the price drop is due to cheaper Canadian gas, of which PG&E happens to be the largest purchaser in the United States. The Canadian government recently slashed its regulated price of export gas to a rate fairly competitive with average prices in the US.
Mr. Rutkowski says PG&E customers may see their bills lowered again around mid-year because the company is turning to its domestic suppliers to renegotiate contracts. ''Now that all the gas is basically in the same (cost) area, we feel we're going to be able to bargain hard,'' he comments.
Bargaining is something new to this industry. Unable to sell a surplus of high-priced gas, pipeline companies have confronted gas producers to rework long-term contracts and push for discount deals. At the same time, the marketing that is bursting on to the gas scene is bringing lower prices to end-users, explains Joseph Hydok, vice-president of gas and steam operations for Consolidated Edison in New York. ''The market is working,'' he says.
This hasn't always been true. In fact, until this year gas prices were rising steeply despite the surplus (see chart). During this period the price of oil - the competing fuel to gas - fell below regulated gas prices. Gas consumption naturally dropped, but prices couldn't. Under the Natural Gas Policy Act of 1978 , prices for gas found deep in the earth were decontrolled. This is the most expensive gas to collect - but producers went for it because they could get higher prices for it. At the same time, gas distributors were locked in to ''take or pay'' contracts, long-term promises to buy gas signed for during times of tremendous gas demand back in the '70s.
Analysts don't see today's market forces turning against the consumer anytime soon. Not next year they say, and probably not even the year after that. Here is a brief outline of the various factors at work and their likely effects on deregulated gas prices in 1985:
* More Canadian gas: California, parts of the Midwest, and the Northeast should benefit the most. ''With the change in government and pricing conditions in Canada, there will be even more of a surplus. That means we won't see prices go up,'' says Daniel Yergin, president of the Cambridge Energy Research Association. ''Canada is the key to the future of the gas bubble.''