Last week, Algeria was given the go-ahead by federal regulators to sell liquified natural gas in the United States for $6.65 per 1,000 cubic feet. Meanwhile, domestic natural gas with an average wellhead price of $2.50 per 1 ,000 cubic feet is going unsold because of excess supplies.
It is this kind of market distortion that the Reagan administration is trying to eliminate with its proposal to free the natural gas industry from all controls by Jan. 1, 1986.
But what will this mean for consumers?
Supporters of deregulation argue that consumers are paying too much for gas under the present pricing system. Texas A&M University economist S. Charles Maurice says ''present regulations are actually forcing pipelines into buying high-cost gas even when low-cost supplies are readily available.''
On the other side of the issue, Congressional opponents of decontrol, led by Senators Howard M. Metzenbaum (D) of Ohio and Paul E. Tsongas (D) of Massachusetts, counter that the Reagan proposal would mean sharp increases in home heating costs. Consumer groups such as the Citizen/Labor Energy Coalition also are lined up in opposition to decontrol.
The Reagan administration itself is predicting heated congressional and public debate over its decontrol proposals - followed by passage of the new legislation.
The White House expects congressional critics and consumer groups to accept the new initiative eventually as recognition spreads that the present regulatory system is to blame for the contradiction of steadily rising prices at a time of excess supplies. According to a statement from the President's Cabinet Council on Natural Resources and Environment, the present system ''is not protecting the consumer from rapid price increases and is instead operating to subsidize more expensive imports and uneconomic production of natural gas.''
Current pricing distortions arise from the 1978 Natural Gas Policy Act (NGPA) , drawn up in response to supply shortages which developed during the 1976-77 winter. The Reagan administration now proposes to replace NGPA provisions for gradual decontrol of newly discovered natural gas with complete decontrol of all gas in 1986.
Additionally, the new legislation would provide for renegotiating current contracts which have locked pipelines into purchasing high-cost domestic and Algerian gas despite the oversupply of low-cost gas from domestic producers. Beginning Jan. 1, 1985, existing contracts for high-cost gas would lapse and open the way to renegotiate terms on the basis of market conditions.
One past obstacle to natural gas policy reforms has been a divided industry. Utility companies holding old contracts for natural gas at prices fixed as low as 50 cents per 1,000 cubic feet naturally have resisted decontrol. But as supplies of old gas diminish and utilities are forced to buy greater proportions of high-cost new gas, this source of opposition is disappearing.
The chief remaining complaint from the natural gas industry has centered around President Reagan's delay in delivering on his campaign promise to decontrol natural gas. But despite the two-year delay, says Independent Petroleum Association of America executive vice-president Lloyd Unsell, ''The important thing is that for the first time in 29 years, an administrtion is on the brink of forcefully urging the Congress that on a certain date we should get out of the business of regulating natural gas prices.''
Dr. Maurice explains that the effects of decontrol are hard to predict because the present situation is so complex. Also, gas prices under future free-market conditions will be greatly influenced by what happens to world oil prices. But Maurice anticipates, as the White House does, that natural gas decontrol will operate much as crude oil decontrol did two years ago - pushing prices up moderately over a short period, followed by a longer-term drop in prices.
''The challenge for decontrol proponents will be to convince people that the price rise will be temporary while the end result will be to hold gas prices down,'' says Maurice. He adds that once the industry sees decontrol under way, ''it will encourage more pumping from low-cost fields.''
The Reagan initiative on natural gas prices has evolved gradually over the past two years. The legislation drawn up for presentation to Congress Feb. 28, with hearings already scheduled for next week, is based on weeks of close consultations between White House officials, congressional leaders, and industry spokesman.