Natural Gas and the Competitive Fuel Market
Authors: Quinn Francis J. 
Published: December 2007

Editor's Note: The following is the first in a series of four articles concerning inter-industry competition in the domestic fuel market. To be published in consecutive issues of JOURNAL OF PETROLEUM TECHNOLOGY, each of the papers will approach the widely (and often heatedly) debated subject from the viewpoint of a different segment of the energy producing marketing field. Obviously, the ideas and opinions expressed do not necessarily reflect the views of the majority of SPE members but, rather, are presented solely for the purpose of providing the reader with further insight into this controversial problem.

The Natural Gas Act of 1938, which put interstate pipelines under the jurisdiction of the Federal Power Commission, did not place a protective competitive shield around such companies, nor does any provision of the act guarantee them a profit. Natural gas pipelines are competitive with each other and also with the coal and oil industries. Gas distributing companies must compete not only with the coal and oil industries, but also with the electric industry. Natural gas has captured markets from oil, which had taken them from coal. Oil men contend that gas prices have been held to an artificially low level by regulation. The electric industry is moving into the space-heating market, which pleases the coal people because the coal industry's largest customer since losing the railroads to dieselization has been the electric companies. The coal industry is attempting to monopolize the industrial and electric generating market through government intervention. This is being done under the guise of concern for the national welfare through advocation of a "National Fuels Policy" purporting to further the cause of fuel conservation. Such a policy is contrary to American principles and would result in the individual's loss of freedom of choice and, ultimately, in less reserves of preferred fuels because of diminished exploration efforts.

Introduction

The natural-gas industry is often regarded as the younger brother of the petroleum industry. However, more than 2,000 years before the discovery of petroleum in America, the Chinese are said to have found natural gas while drilling for salt. Even in this country, the use of natural gas antedates that of petroleum. In 1821 the inhabitants of Fredonia, N. Y., drilled a 27-ft gas well which supplied gas for illumination of 30 homes and businesses. However, large-scale use of natural gas for both illumination and industrial fuel purposes first occurred at Pittsburg, Pa., in 1884 when a 14-mile pipeline was constructed to the city from the Murraysville field. The use of gas in home and industry increased and, since local supplies of gas were limited, distributors were obliged to convert to manufactured gas or to extend transmission lines to more distant fields. However, the large supply of natural gas in the ground in far-off Texas and Louisiana was unavailable to the large markets until the 1920's. In June, 1929, natural gas was flowing through the first all-welded 16-in. steel pipeline from Jal, N. M., to El Paso, Tex., a distance of some 200 miles. It was not, however, until after the end of World War II that natural gas became the nation's fifth largest industry.

The Natural Gas Act

In 1938, Congress passed the Natural Gas Act which provided for jurisdiction over interstate natural-gas pipelines by the Federal Power Commission. The act provides, among other things: that every natural-gas company must obtain a certificate of public convenience and necessity to engage in the transportation or sale for resale of natural gas in interstate commerce; that no natural-gas company may extend or abandon its facilities, subject to the jurisdiction of the FPC, without prior approval of the Commission; that rates and charges of a natural-gas company must be just and reasonable and that any rate or charge that is not just and reasonable is unlawful; and that the Commission may investigate and determine the actual legitimate cost of property of every natural-gas company and the depreciation thereon. The Natural Gas Act does not give a pipeline company a monopoly. In fact, Section 7(g) of the act specifically provides that the FPC may certificate competing pipeline projects in this unmistakable language: "Nothing contained in this section shall be construed as a limitation upon the power of the Commission to grant certificates of public convenience and necessity for service of an area already being served by another natural- gas company".