Natural Gas: Sudden Glut

The Energy Department urges fuel users to make a surprising switch

Normally at about this time of winter, users of natural gas start worrying about whether they are going to make it through to spring without shortages and cutoffs. This winter is turning out to be different in a quite unexpected way. Instead of looming shortages, the problem now is a projected glut of gas.

Enactment of the energy bill in November has freed large amounts of the fuel for interstate sale, and this has put the Carter Administration in the welcome but confusing position of having to do an about-face on gas policy. Energy Secretary James Schlesinger still wants industrial and commercial users to switch to coal, which is by far the nation's most plentiful fossil fuel. To help alleviate the gas glut, however, he would also like any user that has already disconnected from gas and shifted to fuel oil to switch back to gas.

Residential consumers are not directly involved, since few have experienced actual supply interruptions to their homes. Only a handful have felt the need to switch away from gas. Nonetheless, state-imposed bans on making gas available in new construction have held down the number of residential users, and that is something that the Energy Department would also like changed. So confident has the department become about the availability of domestic gas that last week it rejected import applications for some 2 billion cu. ft. of liquefied natural gas a day from Algeria.

The pirouette over gas policy is a result of a key provision in the energy act. Before it passed, gas that was drilled and consumed in the same state was exempt from federal price controls and therefore could be sold locally at a higher price than if it had been bought in another state. As a result, even during the severe gas shortages of recent winters, a few producer states such as Texas and Louisiana had more gas on hand than they knew what to do with. The Texas Railroad Commission, which regulates gas within the state, has kept a lid on new production since last January because of insufficient local demand.

The law has abruptly changed the situation by, among other things, extending federal price controls to so-called intrastate gas. That has made it just as profitable for a driller in, say, Oklahoma to sell his gas to a pipeline company that will transport it to Michigan as to a customer that will use it to generate electricity or heat a factory in Tulsa. This in turn has made available an estimated 1 trillion additional cubic feet of the fuel for sale in states such as Ohio, Indiana, and New Jersey, where it is needed most. One trillion cubic feet is roughly equal to 5% of the nation's annual gas consumption, and is more than enough to heat three-quarters of all U.S. homes for one month.

The extension of federal price controls to intrastate gas is, of course, only temporary. Under another of the act's provisions, federal controls will be eliminated entirely by 1987. The Administration now hopes that this will encourage more production, which has been gently but steadily declining since 1972--as have reserves, which at present amount to about a 25-year supply. But there is no certainty that domestic production will increase.

Temporary though it probably is, the glut comes at the right time for the nation's energy-battered economy. Since 1973 more and more industrial users of natural gas have been converting to other fuels, and consumption of gas has dropped by nearly 14%. Meanwhile, oil use has soared, particularly that of imported fuel oil, which is readily available in the industrial Northeast and is an easy alternative to natural gas. (Gas still remains preferable, when it is available, because it is easier to handle, nonpolluting, and only a little more than half the price of oil.) During 1978 petroleum imports averaged $105 million worth a day. The Energy Department estimates that increasing the industrial use of domestic gas by 1 trillion cu. ft. a year would shave $2 billion or more annually from the nation's import bill. That would cut the U.S. trade deficit by perhaps 7%.

The difficulty will be to convince customers, particularly big industrial users, that they can count on stable supplies. Says American Gas Association President George ("Bud") Lawrence: "You don't turn these guys on and off like faucets. They are going to want assurances that supplies will be available on a steady basis for some time to come."

In fact, the Administration's position on natural gas has shifted about so often and so unexpectedly that this latest flip is already beginning to look like a public relations flop. Though the idea of freeing intrastate gas for the national market has been an important objective all along, the Administration has managed to give the impression of stumbling upon its trillion-cubic-foot bonanza almost by accident--and then hurriedly redirecting national energy policy to take account of the discovery. Complains a spokesman for Ford Motor Co., which uses much natural gas: "The Government seems to be going in all directions on this. I thought they were telling everyone to convert to coal." Officers of many power utilities seem just as perplexed. Says a utility executive in Iowa: "People have been had too many times. For Schlesinger to stand up and say 'Come on back ...' is not going to change their minds." Adds the president of a New Jersey utility: "Our future is in coal and nuclear. Gas is just too chancy, and coal is cheaper."

Not only do customers have to want to burn gas, but the various state public utility commissions, which regulate who gets how much, have to be willing to let them. Acting in a spirit of "women and children first," many commissions put in restrictions in the early 1970s to cut gas supplies to factories and commercial plants so that homes, hospitals and schools would not have to go without. In a few states, the restrictions on industrial use are now beginning to be relaxed, but not enough.

Since mid-December an Energy Department task force has been examining what steps might be taken to encourage everyone to cooperate. But, says one member, "really about the only thing that the department could do is to say that it approves a switch to gas and provide supply information so that people will know what the situation actually is." With the Administration's record on natural gas policy already peppered with broken pledges, perhaps the best way to make believers of the public is to stop talking so much and simply let the marketplace forces of supply and price determine whether or not customers will switch back.

This file is automatically generated by a robot program, so viewer discretion is required.