Natural Gas Price Increases:

A Preliminary Analysis

RCED-83-76: Published: Dec 9, 1982. Publicly Released: Dec 9, 1982.

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In response to congressional requests, GAO provided information concerning recent natural gas price increases and simultaneous reports of excess natural gas supplies. GAO prepared a preliminary analysis on: (1) the level and reasons for price increases; and (2) whether there is an excess supply and, if so, how it developed.

GAO found that the prices paid by natural gas end-users vary considerably. Residential and commercial users paid higher prices than industrial and electric utility users in 1981. However, industrial and electric utility prices increased faster between 1970 and 1981. Prices paid by residential customers increased overall between 1979 and 1982, but at somewhat different rates, and current prices vary considerably from city to city. Natural gas producers' proportion of revenues from end-user sales increased from 1970 to 1981 while the pipelines' distributors' shares declined. The Energy Information Administration projects that average residential rates will increase 20 percent from the first quarter of 1982 to the first quarter of 1983. Numerous factors have contributed to natural gas price increases before and since enactment of the Natural Gas Policy Act 1978. Prices paid by pipelines are based on purchases of both domestic and imported gas. End-user rates for natural gas depend on the diverse factors affecting how gas is priced to pipelines, distributors, and end-users. Reports on an excess supply of natural gas are consistent with major pipeline estimates of supplies. Until recently, pipelines could sell as much as they could provide and eagerly sought new supplies. However, there no longer seems to be any unfulfilled demand at current prices, and consumption through the first 8 months of 1982 was below the comparable 1981 level.

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