An Analysis of Natural Gas Pricing Policy Alternatives

RCED-83-13: Published: Feb 3, 1983. Publicly Released: Feb 3, 1983.

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GAO reviewed alternative options for regulating natural gas wellhead prices and evaluated their national energy and economic impacts. This study is presented in two volumes: a summary report and a technical report.

GAO analyzed five natural gas pricing policy options: (1) the Natural Gas Policy Act (NGPA) of 1978, which established a decontrol schedule for new gas; (2) extended NGPA, which would continue NGPA price controls through 1990; (3) adjusted NGPA, whereby the Federal Energy Regulatory Commission would raise prices of old gas and gas found at a range of underground depths; (4) phased price decontrol, under which gas prices would increase to a certain percentage of crude oil prices with total wellhead price decontrol in 1985; and (5) price decontrol in 1983 for all wellhead gas. GAO found that, although no alternative emerged as clearly superior, the present law and the proposal to totally decontrol prices in 1983 offer better results with fewer disadvantages. Phased price decontrol and the adjusted NGPA would set ceiling prices higher than necessary to clear the market with few compensatory benefits, and the extended NGPA could create natural gas shortages in 1985 and beyond. In analyzing market forces, GAO found that, under price decontrol in 1983, consumer costs would be about 3 percent higher than under the NGPA. In estimating the price effects of contract provisions, GAO believes that, under price decontrol in 1983, the cost of gas would rise substantially above market clearing prices. GAO concluded that there is no clear reason to change the current price deregulation schedule from that established by the NGPA; however, if decontrol in 1983 were selected, the contract issue would need to be addressed.

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