A Surplus Of Suspicion

Along with all its energy shortages, the U.S. has one surplus--an abundance of public suspicion that natural-gas producers are holding down production to force prices up. In response to this feeling, several Government investigations were called last week to determine to what extent, if any, producers are deliberately withholding gas from the market. Interior Secretary Cecil Andrus sent a six-man team of investigators to Metairie, La., to examine the records of four offshore fields in the Gulf of Mexico that have reported sharp production declines. Says Andrus: "If it appears that gas has been withheld, then we will move into a larger investigation." A House commerce subcommittee headed by California Democrat John E. Moss announced it would open hearings into possible gas withholding in a week or two. Finally, President Carter let it be known that if evidence of impropriety turned up, he may direct Energy Adviser James Schlesinger to start a full-scale probe of gasmen's production policies.

What the investigators may find cannot be foreseen. But the probers would do well to distinguish between two varieties of withholding: one that is legal and open, another that would be illegal but has never been conclusively proved.

Holding Fuel. Gas producers, based mainly in the South and Southwest, have indeed been holding back fuel that could be fed into interstate pipelines for shipment to the East Coast and the Midwest, because the Federal Power Commission will let them charge no more than $1.44 per 1,000 cu. ft. for it. Instead, they have been selling the gas in the states where it is produced, mainly Texas and Louisiana, at uncontrolled prices of around $2. Indications are that the amounts of gas thus diverted are vast. Interstate pipelines took 67% of all new gas produced in the U.S. in 1967; in 1975, the last year for which figures are available, they got only 13%.

Some producers are also refusing to pump from wells already drilled. Jones Co. Ltd. of Albany, Texas, spent $4 million drilling four wells in Colorado that one partner, Jon Rex Jones, estimates could be delivering gas to customers in six months. But he insists that he will not connect them to a pipeline unless he is certain of getting $2 per 1,000 cu. ft. for the gas. In addition, producers in Houston readily tick off examples of fields where they are sure gas exists in commercial quantities, but where they will not drill. Reason: unless the interstate price goes to $2, they fear drilling would not be profitable. George Mitchell, head of the Texas association of independent oil producers, mentioned one 16-million-acre field in New York, Ohio and Pennsylvania--three of the states hit hardest by this winter's shortages.

Critics assert that in letting deposits remain in the ground, gas producers are putting their balance sheets ahead of the public interest. Yet, there is nothing that the Government can do about this kind of withholding. Producers have a legal right to sit on gas until they judge the price to be proper--so long as the fuel lies under private land. But a quarter of all U.S. natural gas is pumped from fields leased from the Government. Producers are obliged in their leases to exercise "due diligence" in getting that gas out.

Nonproducing Reservoirs. The FPC has found numerous instances of what it considers a lack of due diligence and has turned its evidence over to an administrative-law judge, who is still considering it. In one investigation, FPC staffers found 7 trillion cu. ft. of gas in nonproducing reservoirs on federal territory. Gasmen argue that such disclosures prove nothing. If a well is to be efficiently exploited, they say, it must be tapped at a judicious rate. Pumping out gas too fast can reduce a well's long range output.

Another charge made against the gas producers is that they have repeatedly, in violation of their contracts, failed to fill the purchase orders of their interstate pipeline customers. In 1963 Gulf Oil Corp. signed a 20-year contract to deliver a minimum of 500 million cu. ft. a day to Texas Eastern Transmission Corp. In 1972 Gulfs deliveries began to fall short, and last summer they dropped to 350 million cu. ft. The FPC set a deadline of Dec. 15 for Gulf to start meeting its obligation. The company, which claimed it had no reserves available, has appealed the decision rather than comply. An FPC study found that Amoco refused to drill a new well in the Gulf of Mexico, saying that it lacked the $1 million needed for the job. The untapped reserves had been dedicated to Transcontinental Gas Pipe Line, which supplies the Northeast.

The pipelines, it should be noted, almost never complain about producers' short deliveries. Why? Critics contend that pipeline companies are in sympathy with the gas producers' demand for price decontrol. Also, says one federal gas expert: "If the pipelines bucked the producers they'd never be able to buy an ounce of gas from anyone."

Gasmen assert that much of what appears to be withholding is the result of technical snags. For example, some fields containing known reserves are not producing either because they are not rich enough to justify the construction of a pipeline to them or because the line's progress is being held up by Government red tape. Small independents, particularly, insist that they cannot afford to sit on easily drilled deposits because they need the money to pay their debts.

New Policy. One good result that may come from the controversy is a Government assessment of just how much gas the industry could pump if it really tried. The Government now gets its figures on reserves from the producers and the American Gas Association. Critics contend that in order to set a reasonable gas policy the Government should have its own estimates, and Secretary Andrus agrees. Thus President Carter's new energy policy will probably provide for independent federal assessments of just how much gas the nation possesses and how best to get it to market.

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