Federal Regulation of Propane and Naphtha:

Is It Necessary?

EMD-78-73: Published: Oct 24, 1978. Publicly Released: Oct 24, 1978.

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Propane and naphtha are important to major segments of the Nation's economy because they are used both as a primary fuel and as feedstocks for certain industrial processes. Propane and naphtha, along with other petroleum-based products, were placed under federal control by the Emergency Petroleum Allocation Act of 1973. The responsibility for establishing and carrying out the allocation regulations were delegated to the Federal Energy Administration (FEA) and transferred to the Department of Energy in 1977.

Under the act's provisions, the FEA was required to distribute petroleum products in scarce supply on an equitable basis. The propane shortage did not develop to the extent anticipated when the regulations were formulated. National supply levels have exceeded the demand, and domestic production is expected to remain fairly constant through 1985. Past shortages have resulted more from distribution problems than from a supply shortage. The propane allocation regulations are unclear and ambiguous; as a result, the regulations are not understood and, in many cases, are ignored altogether. The propane allocation program was supplemented with a program to provide state officials with a quantity of fuel to allocate in emergencies, but the state set-aside program did not always provide relief for hardship or emergency conditions as was intended. The program was underutilized either by choice or by circumstances. Since 1974, the purchase of propane and naphtha has been constrained by the FEA to limit expansion of the synthetic natural gas industry.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: With regard to propane, the Secretary of Energy should: take required steps to exempt propane from allocation regulations but continue monitoring large users to assure that traditional and high-priority users are not adversely affected; and continue the use of the State set-aside program for propane but clarify regulations concerning delivery time periods and availability and adjust set-aside percentages to match expected State requirements. As to synthetic natural gas feedstocks, the Secretary of Energy should: establish goals for synthetic natural gas production and use, take required steps to deregulate the allocation of naphtha and other synthetic natural gas feedstock supplies, and implement review procedures to ensure that synthetic natural gas use is limited to high-priority customers.

    Agency Affected:


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