Gas decontrol may slow down Reagan blitz
Washington — President Reagan may have wrapped Congress neatly around his finger on tax and budget cuts and dropped price controls on oil with relative ease. But it is far from certain that the flush of victory will allow him to lift price ceilings for natural gas.
Only days after a Cabinet council privately urged ending all natural gas price controls by 1985, the combatants on either side of the question were polishing their armor for battle. Sen. Howard M. Metzenbaum (D) of Ohio, an opponent of decontrol, is serving notice that he will lead a filibuster just as he did over the same issue three years ago.
US Rep. John D. Dingell (D) of Michigan, chairman of the House Energy Committee, speaking on public television last week, offered an "over my dead body" response to the speeded-up deregulation plan. And even Republicans are showing little enthusiasm for leading the charge that would mean higher fuel bills for their constituents.
Few proposals, short of a social security cutback, are more controversial than lifting controls on natural gas. More than half (55 percent) of all American homes are heated by natural gas, and it is widely used in industry, especially in textile and chemical manufacturing, as well as by public utilities.
Most of these customers have been paying an "artificial" price for their natural gas for the past 30 years. Almost since this efficient, clean-burning fuel first grew into widespread use, the federal government has controlled its price.
Until recently, it did not seem to matter since almost all energy was cheap. But during the last decade the price of oil exploded and took off like a rocket, while the price of natural gas still hovered close to ground level.
A family who was fortunate enough to be burning natural gas in their furnace last March paid an average price of 58 cents for the same amount of energy found in a gallon of heating oil that cost $1.25.
The days of low fuel bills for natural gas customers are already numbered. The Natural Gas Policy Act of 1978, hammered out after bitter debate and filibustering, allows natural gas prices to creep up gradually. It will end controls on about half of the natural gas produced in the US after 1985.
As controls are lifted, experts expect natural gas prices to rise close to the level of heating oil. But, in the meantime, the family with a gas burner will continue paying only a fraction as much as neighbors down the street who burn oil.
Such a controlled market hardly squares with the Reagan philosophy of free enterprise. One of his first acts as president was to lift all remaining controls on oil prices. And his Cabinet Council on Natural Resources and Environment has proposed the same of all natural gas by 1985, and at a pace much faster than the current law allows.
Proponents of speeding up decontrol of natural gas make these arguments:
* Well drillers need an incentive to explore for more natural gas. The nation's proven reserves of the gas has been sinking yearly and now stands at less than a 10-year supply.
* Higher prices will encourage more conservation. (Consumers will save 10 percent during the first year, says one decontrol advocate.)
* Decontrol is coming anyway for half the gas in 1985, and boosting prices higher now will ease the shock in four years.
On the other side of the decontrol battlefield, opponents charge that consumers and the economy will suffer. Their arguments:
* Households will have to pay twice as much for natural gas, and the national inflation rate will be forced up because industries must pay more for energy.
* Industries such as textile and chemical manufacturers will have to raise prices and will have trouble competing on the world market.
* Drilling companies are already exploring for more gas, and do not need higher prices to spur them on.
One of the most outspoken supporters of decontrol, George P. Mitchell, heads Mitchell Energy & Development Corporation, an independent Houston firm that sells Chicago 10 percent of its natural gas. Mr. Mitchell sees a free market for natural gas as the key to solving the nation's energy woes.
"It's the finest fuel of all. There are no environmental problems." he says.
Despite fears that the nation is running out of gas, Mitchell estimates that the country has a 40-year supply and could cut foreign imports of oil drastically by 1995 if enough new gas wells are drilled. He maintains that 100, 000 new wells a year would be enough to rebuild reserves.
Since the 1978 act dropped some price controls, Mitchell says that his company and others have already stepped up drilling "We could do a lot more," he says.
David Foster, president of the Natural Gas Supply Association, points to recent findings that 34 states in the lower 48 can produce some gas, while five years ago only 17 states were natural gas producers. However, drillers need the incentive of price decontrol, he says, pointing to the fact that although a record number of drilling rigs were operating the first half of this year, natural gas wells went up only 6 percent while oil wells increased 41 percent. "The obvious reason is that crude oil has been decontrolled," says foster.
Edwin Rothschild, director of the Energy Action Education Fund, a consumer group, is unpersuaded that higher prices will bring more natural gas finds. "Producers of gas are so flush with cash that they can't even use all their money," he maintains. "Decontrol would produce windfall profits without any real benefit to the nation."
His group estimates that the average single-family dwelling costs $555 to heat with natural gas in 1981 and about $1,300 to heat with oil. Under the current law, he predicts the natural gas bill will go to $625 by 1982. If decontrol is speeded up, he says the price tag for heat will average $1,030.
"Here's a president that says he's against inflation." says the consumer advocate. "This [decontrol] is clearly inflationary." Rothschild pointed to the food industry which relies on natural gas. Bakeries cook with it, he says, and plastic wrappings are manufactured with natural gas.
The total cost to Americans each year would be $60 billion, says the American Gas Association (AGA), which represents distributors and utilities that prefer low gas prices.