INTERSTATE NATURAL GAS SUPPLIES Q. A. How will the natural gas bill increase interstate gas There is currently a substantial surplus of natural gas The lack of a unified national market where producers can sell either intrastate or interstate gas without price or other disadvantages perpetuates the circumstances which result in intrastate surpluses. Because of the surplus, the average price for new intrastate gas has actually fallen in real terms over the past year. The average intrastate price for the first six months of 1977 was approximately $1.85 per mcf. The average price for the first six months of 1978 in real 1977 terms was approximately $1.75 per mcf. (FERC Form 45). Significantly, the initial ceiling price for new gas under the bill will be $2.04 per mcf and will, after 1981, increase in real terms at 3.5 percent annually until 1981 and 4 percent thereafter. These prices, established nationwide, will create strong incentives for interstate sales of gas which would otherwise remain in the intrastate market, or not be produced at all. : When intrastate producers can sell their gas to to interstate pipelines for more than they can currently obtain in the intrastate market without the burdens of FPC-type regulation (abandonment, certification, rate filings), this surplus, as well as additional production resulting from the higher prices and the creation of these new markets, will flow into the interstate system. At the margin, natural gas is interchangeable most directly with fuel oil, LNG or SNG. The experience of the winter of '76-'77 makes it clear that curtailed supplies of natural gas were replaced in many cases by increased use of oil or SNG. As additional LNG projects come on line, they also become a longer range substitute for conventional gas supplies. Therefore, increased flows of natural gas in interstate commerce will tend to displace oil and SNG in the short-term, and LNG in the longer term. The average price of natural gas delivered to end use markets under this compromise is projected to remain well below oil, LNG and SNG through 1985. Current and projected gas prices as well as alternate fuel prices It is clear that gas to end users under this compromise - - even with incremental pricing - will cost less for both industrial and residential consumers than any alternate fuels. This also assumes that OPEC prices remain constant -- a most conservative assumption. Also, this compromise will serve to narrow the historical gap between prices paid by industrial users and those paid by residential customers. Sources: 1975 AGA, 1976 Gas Facts, Page 114, inflated to 1978 Dollars. 1978 July 1978, Monthly Energy Review, 1985 Gas Under Compromise - EIA Analysis 1985 Alternate Fuels EIA 1978 Annual Report to Congress, Chapter 5. Additionally, gas under the compromise will also be substantially cheaper than LNG or SNG. On the margin, LNG imports are projected to have a landed cost of $3.95 per mmbtu. SNG from naptha or other petroleum derivatives would cost more than $5.00 per mmbtu. End user costs will be higher yet, reflecting transportation costs from point of entry into the distribution system. (EIA PIES Analyses: 1985 Medium Range/Trendlong compared with Comp/Fully Adjusted Demand/Median Geology.) |