Evening star. [volume] (Washington, D.C.) 1854-1972, 1955-03-06
TheCuse
Against

In company with other businesses
which have come under the hand of
governmental control. the natural
gas industry must look forward to
an involuntary stunning, retarding
and eventual sitting unless Congress
removes its new burden of Federal
bureaucracy.
The Government is not regulating
the price Of the products with which
gas must compete in order to stay
alive; !. E., coal and oil. Why the
discrimination against gas?
The case against Federal control
of the natural gas industry rests on
the following points:
4 Control of gas producers will
in no way benefit the ordinary
gas user. The price paid by
the consumer is determined by three
things: % Price of production at
the wellhead. 90 price of the pipe
lines to transmit gas, go price Of
the utilities to distribute it. Ninety
per cent Of the cost to the consumer
comes from the latter two. In
Washington, for example, the con-
sumer pays $1.37 per thousand cubic
feet (Mcf), of gas. OF that amount,
only 1913 cents is the cost of the gas
itself. If the producers gave their
gas away, the average user would
save only 80 or 40 cents a month.
Why all this talk, then, of the con-
sumers being "gouged" by gas pro-
ducerS?
- Congress never intended that
L. the FPC would control gas
producers. Section 1(bl Of
the Natural Gas Act states that its
provisions shall not apply Is. to
the local distribution of natural gas
or to the facilities used for such
distribution or to the production or
gathering of natural gas" Until re-
Gently the FPC itself operated on
the assumption that it had no con-
troll whatever over the gas produc-
ers. In spite of this, the Supreme
Court last June decided that the
FPC did have authority to control
wellhead prices of such gas as was
scheduled to enter interstate COM
merce. Only Congress can put the
natural gas industry back on its
feet.
Price control is apt to dis
>. courage the producers so that
they will make little effort
to expand their business. At the
present rate of increase of natural
gas consumption this will mean the
expiration of the industry within
quarter of a century At the end
Of World War II proven gas reserves
were sufficient for another 80 years.
Today, in spite of great new gas dis
coVerleS, the consumption rate has
zoomed to the point where only %
years reserve supply exists. If the
Government controls the price of
producers gas, it controls all the
activities of producerS-Which in
cludeS exploration and development.
Trying to operate on what the
bureaucrats may consider a fair re-
turn could lead to completely I'M
realistic price structure, with con-
Sequent lethal effect upon produce
ers, and no new gas
n Exploration for new gas
r. sources is a risky and expen-
sive undertaking. Only about
one out of every nine drillingS turns
up anything worth while Yet these
explorations must be financed from
the prices gas producers receive.
And nf bn
interstate contracts for gas will not
be conSummated if reserves fail to
stay at an adequate level. Regula-
ton of the transmission companies
requires long term contracting, often
for 20 years or more. To meet such
requirements the producers usually
must dedicate large portions of their
reserves. and this means they must
do lot of validating if they want
any new business. In other words,
the life of the industry depends
upon vigorous exploration. And il
it fails the first to suffer will be the
consumers at distant points from
the gas fields when the pipelines are
unable to renew their contracts.
The national security will also
,. suffer in whatever degree in
dustry depends upon gas
and that is stable degree, espe-
cially in the vital chemical industry.
Moreover. the national economy will
be due for a corresponding shock.
Natural gas is now the sixth largest
industry in the Nation We can only
guess at what economic reverbera-
tons its slow demise might produce,
from the standpoint of production
and employment as we'll as stock
holders.
An alternative reaction which
q. could result from controlling
the Wellhead price of inter-
state gas is the denial of natural
gas to the AZ States which now
produce none of it COR very little)
by the six States which produce 90
per cent of it. Already there is
heavy pressure from political and
economic forces within these six
States to keep their natural gas for
home consumption. One theory is
that industries from other parts OF
the country would migrate to the
Southwest because of the abundance
of efficient, cheap fuel. If the inter-
state price is made too unattractive,
these home State forces could easily
win out.
- Since gas production is a
4. highly competitive business, it
cannot with reason be treated
as utility. Municipal gas COM
panies are utilities: they are given
exclusive franchise to distribute gaA
in their areas and are gHaranteeA
minimum profit; and. of course,
fhalf. HnrinnC nnInfnnllnd la