The Riddle of the Gas Shortage

The arrival of fall in 1975 was accompanied by stern warnings that this was to be the winter when the natural gas shortage would finally pinch the economy. The admonitions had a familiar ring: the alarm had first been sounded in 1962 when energy statistics showed that because of growing consumption the amount of gas found was no longer sufficient to sustain a constant ratio of reserves to U.S. production. The warnings grew in urgency in 1969 when more gas was used than was found, and the absolute volume of known and recoverable gas reserves began to decline. U.S. production, in contrast, did not begin to fall until 1973. By the summer of 1975, the warnings of impending shortages became even more insistent.

As the pleasant weather of fall continued into December, however, the sense of urgency about gas supplies faded. "U.S. Gets Reprieve from Fuel Shortage," "Gas Shortage Evaporates," "Phony Gas Shortage Was Predicted"—these were the headlines appearing in the nation's major newspapers. Once again Congress and the public at large could ponder whether they had been subjected to a "shortage-by-headline," contrived to influence legislation in the direction of deregulating the natural gas industry.

If the press had trouble keeping the natural gas story in perspective, it can hardly be blamed. The statistical exercises that precede each heating season are more confusing than enlightening. In the brief period from October to November 1975, major statistical reports were released by four agencies on projected estimates of gas shortages in 1975-76. These shortages were predicted by the Federal Power Commission (FPC) as 3.23 trillion cubic feet; by the Gas Requirements Committee as 1.61 trillion cubic feet; by the FEA as 1.17 trillion cubic feet; and by the Office of Technology Assessment as 0.3 trillion cubic feet. Not too surprisingly the last-named report was viewed as casting considerable doubt upon the preceding three, suggesting that the so-called shortage could be viewed as being suspect, or at least exaggerated.

A review of the statistics in these four reports reveals that only the Gas Requirements Committee and FEA reports, which have somewhat similar results, appear to be measuring the same thing, and that the FPC report is the only one covering a calendar year September through August.

The confusion produced by the seemingly contradictory reports was compounded by the press releases accompanying them. Thus, the FPC release emphasized that for the next twelve months the interstate pipelines would have a 34 percent greater supply deficiency than that which occurred during the preceding twelve months. The man on the street would have found it less staggering to be informed that the total amount of gas being delivered by the pipelines would be 5 percent less than it had been the preceding year. The two statements merely express the same thought differently.

The confusion, however, is not wholly due to a lack of comparability of data or to press release tactics. A look at the workings of the industry helps to clarify the difficulty of forecasting consumption in the short run.

The industry must prepare for the worst weather because once a shortage develops it has less flexibility in adjusting to the problem than do other fuel industries. The entire pipeline system from well to consumer's burner-tip is basically a fixed system for any particular heating season as well as area. The cross-country pipelines, which deliver surplus gas to storage or to "interruptible" customers during the warm months, sooner or later reach a point in the cold season when all of the gas they are moving is being consumed by the firm customers at the end of the line. As deep winter sets in, the gas stored near to the markets the previous summer is drawn upon gradually to augment the pipeline supplies. Limited supplies of substitute, more expensive gases, such as propane-air mixtures are brought into use to meet the peak needs. Once all of these sources are being fully used, the only response to excess requirements is to stop delivering gas to some of the users.

The gas utilities cannot readily ration gas or reduce the amount put through the pipes. It must provide "full service" or none at all. Federal as well as state utility commissions have specified the order in which the supply to gas consumers will be curtailed if it is inadequate. In general, the first to be curtailed would be very large users who have interruptible contracts, and expect to be denied gas, followed by industrial users who have firm contracts but who could use alternate types of fuel, then indus-tries that would have to shut down without gas, and, finally, small-volume commercial and residential users whose health and safety would be threatened without gas.

The strategy of the gas industry for each heating season must be to balance its commitments to provide gas with its mix of pipeline, storage, and supplementary supplies. As the cold weather begins, the industry must husband its stored gas for the last half of the winter. Should there be less need for gas than anticipated, it can release more gas to the lower-priority customers as the end of winter approaches because less of a cushion is needed to protect the high-priority users in the event of a subsequent cold period.

As the heating season of 1975-76 began, the forecasts of the gas industry were based typically on what would happen under normal economic and weather conditions. Expectations were also affected by uncertainty regarding consumer reaction to higher prices and consumer adjustments to anticipated shortages. But neither the weather nor the economy turned out as predicted. Thus curtailments that did take place by the end of 1975 were readily handled because alternate fuels were also more abundant.

Such offsetting circumstances have for a number of years disguised or compensated for the deterioration in domestic gas-producing capability. The impacts have also tended to be dispersed regionally and among sectors of the economy. There has been no dramatic natural gas crisis comparable to the gasoline shortage. In midwinter it appeared that a serious gas shortage had again been averted. But the gas available for shipment next year is expected to be several percentage points below the current year. Eventually, curtailments will reach a significant number of firm customers who do not have immediate fuel alternatives. Warm winters and a subdued economy will then no longer be sufficient to obscure the true state of affairs.

All of this is a reflection of the quantity of developed gas reserves and their deliverability through time. The actual extent of undiscovered and undeveloped U.S. gas resources is not known. The best anyone has to offer is an informed judgment. What quantity of gas will ultimately be recovered, and at what cost to the consumer, will become known only after the fact, not before. Meanwhile, the conflicting and changing judgments of the industry, the U.S. Geological Survey, and others leave us in the position of having to formulate national policies and to devise energy strategies in the face of uncertainty.

During 1975 Resources for the Future assembled a group of experts representing a cross section of individuals who employ different assumptions and methodologies in preparing the oil and gas resource estimates. The report of this conference, to be issued in early 1976, will be directed toward an explanation of why these resource appraisals vary, and what their significance is. It should help reduce misunderstanding and misuse of these estimates—and, one would hope, narrow the range of opinion—but it will not end the uncertainty, which will remain a permanent affliction.