Business: 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.