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Essay on Economic Regulation of Natural Gas
Natural Gas Regulations: An Introduction
Natural gas is methane in underground deposits, produced by the same geological processes as oil. As a comparatively abundant and clean-burning fuel, gas has been known as a means for achieving energy independence and environmental cleanliness. The 19.1 trillion cubic feet of gas used in the United States in 1991 accounted for 24.5 percent of total British thermal units (BTUs) consumed. Households consumed 26.3 percent of delivered gas and electric utilities used 16 percent to produce power.
Underground reserves of gas are difficult to project importantly for the reason that the amount of gas worth discovering and exploiting depends significantly on its expected future price. Between the early sixties and the late seventies, federal regulations kept the price to producers’ low and discouraged exploration for new supplies. By the 1970-75 period annual additions to reserves had failed to be on a par with production, falling to less than half of their 1955-60 levels in the lower forty-eight states. With the decontrol of gas prices, which began in the late seventies, additions to reserves have become stable and now roughly match production. Proved reserves are currently about ten years of production.
Before the development of high-pressure pipelines in the twenties, gas was either burned off as dangerous or consumed close to its production. At present, interstate pipelines, generally owned by entities other than producers, link wells with consuming areas. Local distribution companies (LDCs), generally owned independently of pipelines and producers, deliver and sell gas to final users. Most distribution is by corporate LDCs, with the remainder by municipal governments. Two types of pipeline service are available to distributors. Under so-called sales, or system, supply the pipeline purchases gas from producers and resells the gas to the LDC. Under transport the LDC makes its own purchases directly from producers and uses the pipeline only as a transporter...........
