Reagan to Get Options to End Gas Price Curbs : Energy Dept. Also Urges Hike on ‘Old’ Supplies

Energy Secretary John S. Herrington said Tuesday that he will soon send President Reagan new “legislative options” to eliminate federal regulation of natural gas prices.

Speaking at the annual meeting of the American Petroleum Institute here, Herrington said he expects Reagan to select his choice on gas deregulation “soon, certainly before the end of the year,” but he declined to describe the options that are being sent to the White House.

Herrington also said his department is urging the Federal Energy Regulatory Commission to raise the regulated ceiling price for so-called old gas from pre-1978 wells to $2.51 per thousand cubic feet from a current average of $1.40. Herrington said the higher price ceiling would result in greater gas exploration and production. Gas discovered since 1978 is not subject to such ceiling prices.

Industry Skeptical

Separately Tuesday, the Justice Department in Washington called on FERC to end all ceiling prices on “old” gas, claiming that such an action would create a greater supply and reduce overall prices.

Herrington’s remarks were greeted with skepticism by oil industry executives attending the API meeting.

“We’ve heard this from a number of speakers over the last 30 years,” said John F. Bookout, president and chief executive of Shell Oil. “Let’s hope something gets done this time.”

The major oil companies control much of the “old” gas and so have the most to gain from price decontrol. There are currently several categories of “old” gas with price ceilings ranging from 31 cents to $2.51 for each thousand cubic feet, according to the Energy Department. The average price for such gas is about $1.40.

Below ‘New’ Gas Price

“Old” gas makes up about 42% of the natural gas sold on interstate markets, and its price has been significantly below the recent $2 price for “new” gas not delivered under long-term contracts.

Observers said Herrington’s proposal amounted to de facto decontrol because the new ceiling would be higher than market prices.

Industry sources viewed this as an easier way to accomplish decontrol, which would otherwise require an act of Congress.

The Natural Gas Policy Act of 1977 requires price controls for “old” gas but allows FERC to set the prices.

There were differing opinions about what the higher ceiling price would do to the price that consumers pay for natural gas. The Justice Department said price deregulation could lower residential gas bills by 12% within a year.

However, Michael German, vice president for policy and analysis for the American Gas Assn. in Washington, called those figures “faulty” and said Herrington’s proposal would result in higher prices. German’s group represents the natural gas utility industry.