Proponents of gas decontrol say the time is right
Alexandria and Shreveport, La. — Gas people in Louisiana generally feel the Natural Gas Policy Act, with its Byzantine web of nearly 30 classes of gas, has put them in a serious bind. A leading producer of natural gas, Louisiana is also the country's heaviest user of gas, principally for industrial purposes, including power plants.
The state has relied heavily, especially in recent years, on intrastate pipelines. Ironically, the Natural Gas Policy Act of 1978, which moved the country partway toward decontrol, put intrastate gas, which had never before been federally regulated, under price controls for the first time.
Across the state there is strong feeling that these new controls have been a serious problem for Louisiana industry.
William L. Terrill, president of the Louisiana Interstate Gas Company in Alexandria, argues that prices for ''old'' gas (discovered before 1977) should be deregulated, and there's no time like the present to do it.
''Deregulation would be easier now than it has been since we first started to talk about it. Oil prices are down; therefore competitive alternative fuels are going to limit what you can do in the marketplace.
''There is an oversupply for the moment of natural gas, and so prices ought to come down,'' Mr. Terrill told the Monitor before flying to Washington to testify in support of the administration bill. The Reagan proposal, which was heading for markup in the Senate at press time, would decontrol old gas by Jan. 1, 1986.
Under present law, all post-1977 gas will be decontrolled on Jan. 1, 1985, but old gas will remain under its cap until the wells run dry and is expected to remain a factor on the pricing scene until virtually the turn of the century.
Mr. Terrill sees three major problems with the current natural gas situation:
* The supplies of cheap ''old'' gas interstate pipeline companies enjoy. These ''cushions'' enable them to buy expensive new gas above market-clearing price, mix it with old gas, and pass the mixture along at a price that undercuts that of intrastate pipelines, which lack such a cushion.
* High ''take or pay'' contractual provisions, which commit a pipeline company to ''take'' a certain proportion of a well's production, or pay for it anyway. Contracts written around 1977 and '78 - in a seller's market, Mr. Terrill notes - contained take-or-pay provisions of up to 100 percent, nearly twice the level of earlier years. When declining demand forces pipeline companies to shut gas in, it's the cheap old gas, rather than new gas, which they will have to pay for anyway, that gets capped. Thus at a time of low demand , disproportionately expensive gas is being used.
* Rate increases, which Mr. Terrill describes as a natural occurrence in a monopoly when sales decline - as they are doing now, but with overhead remaining constant.
The administration bill would cap take-or-pay provisions at 75 percent for two years, which would eliminate 90 percent of the problems with these clauses, Mr. Terrill estimates. He adds, though, that the rate increase problems due to recession will continue until full recovery.
Many intrastate pipelines have contracts for ''old'' gas, but this is no cushion: The Natural Gas Policy Act has allowed old intrastate gas to rise to a so-called ''incentive'' price level much higher than the price allowed for old gas in interstate business, and so interstate pipelines could use their cushion to outbid the intrastates. ''This killed us, frankly,'' Mr. Terrill says.
Louisiana's petrochemical plants rely on the intrastate gas for which prices have risen so sharply since the Natural Gas Policy Act. Industry sources say deregulation of old gas would put these plants on a more even footing with those in neighboring states. Conversely, without decontrol, intrastate pipelines fear they won't be able to hang onto customers.
Gov. David C. Treen, who supports the Reagan administration's deregulation bill, calls this ''a real public-perception issue.'' If gas prices to consumers are seen as likely to go up under deregulation, the legislation will fail. ''But if producers can convince people that deregulation will mean stable supply and prices, it may well pass.''
Over in Monroe, W.B. Moran, president of Trident Oil & Gas Corporation, a small independent production company, calls the federal act ''a disaster.'' He adds, ''We were told it was going to be a disaster and it has developed to be much, much worse than it was forecast to be.''
Pipelines are buying less gas, and production companies are drilling less. Mr. Moran wonders aloud when increased demand will outstrip depleted supplies. ''Is that going to be 12 months from now that the two lines clash?''
But from over in Shreveport comes a contrary opinion that is somewhat maverick for Louisiana. Jim Wilhite is vice-president for operations of Arkla Inc., an integrated interstate gas exploration, production, and transmission company.
He says, ''We're opposed to deregulation of old gas, for several reasons. A very high percentage of old gas reserves are owned by major oil companies.
''I don't believe it's of great benefit for the consumers of natural gas to put a great deal of money into the major oil companies, because I don't see that those major oil companies will turn around with their main thrust to find more gas. Their main thrust is going to be to find more oil, which doesn't greatly benefit our consumers. I don't really see the need for deregulating old gas, because the economics are there now, the incentives (for exploration) are there. If the demand was there, you would see the marketplace responding as far as exploration is concerned.''
Mr. Wilhite sees the downturn in exploration as a function of general recession and the glut that has gone with it.
Although he concedes that some gas regulations may need to be changed, such as the one that keeps intrastate pipelines from buying offshore gas, he says, ''I think it's more constructive to have [natural gas prices] regulated on the front end than to have 50 state regulatory bodies saying, 'I think it ought to be this' and 'I think it ought to be that.' ''
Some observers suggest that perhaps the gas supply situation would be improved by the existence of a spot market, like the oil spot market. But meanwhile, Mr. Wilhite says, ''Why should we be trying to cost the consumer in this country more money? I don't understand it.''
The American Gas Association, whose members are utilities buying gas, backs him on this: It estimates the cost of decontrolling new gas at $7 billion a year.
The Reagan bill includes some valuable protection for consumers, Mr. Terrill argues. Pipelines will be able to pass along to consumers only the price of gas the month before enactment of the bill, plus inflation. Any bigger increase would require a ''long-drawn-out'' hearing before the Federal Energy Regulatory Commission.
He expects the bill to provide ''immediate relief, quite frankly,'' in the Midwest and Northeast. But if these provisions get gutted, it will result in loss of a lot of support from the Midwest and Northeast - support he does see.