Changes in Natural Gas Prices and Supplies Since Passage of the Natural Gas Policy Act of 1978

Through the Natural Gas Policy Act, Congress intended to stimulate production and exploration for reserves by permitting producers higher prices for gas from areas where production was previously not economical and for gas produced from new wells. The Act eliminated the price disparity between the natural gas sold in interstate and intrastate commerce by subjecting both to Federal regulations. It also provided for monthly price increases and for gradual deregulation of natural gas prices. GAO evaluated the impact of the Act on natural gas prices, new natural gas reserves, and production. GAO limited the review to obtaining data on industry attitudes, prices charged, and supplies and industry activities.

Natural gas prices have increased substantially since the enactment of the Act. Consumer prices during the first quarter of 1980 were 33 percent higher than the average 1978 prices. Aproximately 40 cents of the increase resulted from the higher prices which the Act permits producers to charge for the natural gas, and approximately 32 cents resulted from increases in pipeline and distributor costs and profits which the Act did not directly affect. Price increases occurred in every section of 48 states, and producers charged the maximum prices allowed for the vast majority of gas produced. Pipeline and distributor companies charged the price increases to their customers through purchased gas adjustments. GAO was unable to determine what portion of the price increases was directly attributable to the Act. Consumers should expect natural gas prices to continue to climb over the next several years. Production figures for the period 1975 through 1979 increased about 1.6 percent in 1979, reversing a historical decline in annual production. Production continued to outpace additions to proven reserves and, therefore, reserves continued the post-1975 decline, but at a somewhat slower pace. Current supplies of natural gas are generally adequate. All of the surveyed distributors were accepting new customers, as were about one-half of the pipelines. Most of the producers, pipeline companies, and distributors believe that the Act improved the availability of natural gas. Much of the intensified seismic activity and drilling must be attributed to the increased prices of domestic oil.