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Title: The Role Of Underground Storage In The Changing Market And Supply Requirements For Natural Gas
Author: Robert F. Teepe
Source: American Gas Association 1976
Year Published: 1976
Abstract: Six years after the first pipeline curtailment, reasonable people would agree that there is indeed a natural gas shortage. Shortages, of course, are determined in relation to demand. If demand is greater than supply there is a shortage and elementary economics tells us that the classic way to create a shortage is to offer a premium product at a price well below its market value. This is what has been done in the case of natural gas since the Supreme Court decision in the Phillips Case in 1954 which held that the Federal Power Commission had jurisdiction over the wellhead price of gas, and as could have been expected a shortage has resulted. As though this normal market axiom could not have accomplished the result by itself, the demand for gas has been further stimulated by the introduction of air quality standards and the gap between supply and demand has further widened by the lack of sufficient incentive to explore for new natural gas supplies. Regulated prices for new gas are based on historical costs, and an inadequate allowance for risk and consequently are deficient in providing the needed incentive to bring forth new supplies. The conditions that have brought the shortage about are many and generally relate to the political-regulatory scheme, not necessarily to the physical aspects of supply. The fact is that the demand for natural gas exceeds the supply and this condition is likely to continue for some time, certainly until the price of natural gas approaches or exceeds the price of alternate forms of energy and that is likely to happen only under free market conditions.