Impact of Natural Gas Price Decontrol on Gas Supply, Demand and Prices

Abstract

Major analysis completed recently by the gas transmission and distribution industry concludes that available supplies of gas energy will fall into the range of 23-31 trillion cubic feet (Tcf) by the year 2000, as conventional gas production is increasingly supplemented by supplies from coal gasification, Alaska, unconventional sources, LNG, Canada, and Mexico. At the same time, however, gas demand is characterized by price-induced conservation in all markets, together with continuing gas demand constraints and financial burdens imposed by Government regulators at all levels. With these restrictions and burdens eased, the gas industry can rebuild its marketing acumen and capacity. Thus, gas demand may likely increase in both the traditional heating and industrial fuel and feedstock applications, as well as such new non-traditional uses as cogeneration, natural gas vehicles and select gas use with coal.

With regard to impending gas price decontrol, analyses conducted by the American Gas Association (A.G.A.), as well as studies by the U.S. Department of Energy and other groups, concur in the important finding that natural gas will be able to compete with alternate fuels in the energy marketplace after decontrol, as long as indefinite price escalators and other rigidities in gas purchase contracts can be defused so as to enable the market system to operate successfully. A.G.A.'s analysis, indeed, concluded that gas prices are rising rapidly enough under the existing law between now and 1985, so that concerns of a sudden price increase after deregulation in that year may be somewhat overstated, as long as the indefinite price escalators are defused.