Lifting of natural gas controls unlikely to boost prices

Until recently, consumers were expected to pay dearly when federal price controls expire Jan. 1 on about half the natural gas produced in the United States.

Forecasts of a price ''fly-up'' of 10 to 50 percent on the widely used heating and industrial fuel were common, notes Michael German, vice-president of the American Gas Association.

But the dire forecasts appear to have been wrong. The price to home users is expected to rise only slightly, if at all, when price controls are lifted tomorrow on gas from wells drilled after April 20, 1977.

''There is no chance'' of a rapid price increase immediately after decontrol, says Stephen Andersen, research director of the Consumer Energy Council of America. The price of ''new gas'' is being freed under the provisions of the Natural Gas Policy Act of 1978.

''Our forecast is for relatively stable gas prices'' at the consumer level in 1985, says Mark French, an energy expert at Wharton Econometric Forecasting Associates.

The Energy Information Administration, an independent arm of the Energy Department, predicts the price of gas in the next three months will be $6.09 per thousand cubic feet (MCF). That is about 2 percent higher than the $5.97 per MCF charged during the same period last year.

The American Gas Association, which represents local gas utilities and suppliers, expects residential gas prices to rise about 1 percent this winter, Mr. German says. For 1985 as a whole, he expects gas prices to keep pace with inflation, rising roughly 4 or 5 percent.

Even stable gas prices would be good news for homeowners who heat with gas. The average residential price for the fuel roughly doubled between 1979 and 1983 . And a stable price also helps the nation's inflation rate by holding down the cost of using gas in various manufacturing processes.

A price jump appeared likely when oil prices were strong and the gas market was robust. One reason is that prices in some long-term gas contracts are tied (after deregulation) to the highest price being paid for gas in the area. Some other contracts tie gas prices to the cost of a competing fuel like oil. These provisions are referred to as ''indefinite pricing provisions.''

But several factors make it likely the energy market will keep the gas industry from raising prices to customers. And downward pressure from a variety of forces may lead to renegotiation of indefinite pricing provisions, industry analysts say.

The factors holding down gas prices include warmer-than-usual weather, which has cut the demand for gas used in heating.

And among industrial customers who can switch boiler fuels, gas must compete with fuel oil. Oil prices have fallen, at least partly, because of disarray in the Organization of Petroleum Exporting Countries.

Canadian imports also are ''one major factor'' in restraining price increases from domestic producers, Wharton's Mr. French says. Canadian producers have been cutting their price to win a larger share of the US market, thereby pressuring US producers to hold prices down.

In 1983 Canadian gas sold for $4.40 per MCF, while it is now selling for between $2.75 and $3.30 per MCF, up to a third less than prices a year ago, industry sources say.

In fact, the greatest danger to the prevailing retail gas price forecast is that prices ''would be lower than anticipated,'' German says.

Gas prices could fall if there were a sharp break in oil prices that forced a competitive reaction from the gas industry.

Gas prices also could drop if gas pipelines get producers to agree to major concessions in the price provisions of long-term contracts negotiated earlier.

''There has been substantial contract renegotiation'' of deals that required pipelines to take or pay for gas even if they could not sell it, says Jerome J. McGrath, president of the Interstate Natural Gas Association of America.

Producers have been more willing to renegotiate quantities of gas to be purchased, but few have agreed to lower prices negotiated earlier, he notes.

Mr. McGrath warns of a 9 to 12 percent price increase if renegotiation does not continue to take place. Because of delays related to notifying the Federal Energy Regulatory Commission of higher prices, any increase would not be visible to consumers for three or four months.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK