Analysis of the Administration's Natural Gas Decontrol Plan

RCED-83-140: Published: Apr 11, 1983. Publicly Released: Apr 11, 1983.

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In response to a congressional request, GAO analyzed: (1) the short-run impact of the Natural Gas Consumers Regulatory Reform Amendments on gas supplies and prices; (2) the extent to which increases in the price of old gas will be compensated by decreases in the prices of other categories of gas; and (3) the provisions of the amendments designed to influence the renegotiation of existing producer/pipeline contracts.

The GAO analysis of the proposed legislation projected that the amendments would lower wellhead prices 27 to 40 cents per thousand cubic feet below those which GAO projected would exist in 1983 and 1984. This advantage would be offset somewhat, since the lower prices would provide less exploration incentive and result in lower supplies during the 2-year period. This lower supply and increased demand would lead to a large increase in wellhead prices under the proposal. After 1985, prices under the the proposed legislation and current law would equalize. The proposed legislation would reduce prices of most higher cost gas during 1983 and 1984 resulting in large revenue losses to gas producers. However, these losses could be offset because producers also control low-cost gas and can renegotiate pipeline contracts to raise the prices on their production of gas. The prices of old and new gas existing exist under current law would be roughly equalized under the administration's proposal. GAO found that the price ceiling on gas could, by itself, provide a disincentive to renegotiate pipeline contracts. However, a provision which allows contracts to be abrogated is a strong incentive for renegotiation in 1985.

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