Restructuring of Natural Gas Markets by Regulations and Legislations

Abstract

ABSTRACT As the natural gas industry in the United States started expanding, states started imposing regulations on the sale, transportation and distribution of gas. In the 1920's, the U.S. Supreme Court issued three famous decisions which spawned the birth of the federal regulation of interstate sale and transportation of gas. In 1938, the U.S. Congress passed the Natural Gas Act (NGA) which empowered the Federal Power Commission to regulate interstate commerce of gas. In 1954, the Supreme Court, in its Phillips Petroleum decision, imposed federal regulation on the wellhead prices of natural gas sold in the interstate market which eventually resulted in low prices and gas shortages in the 1970's. In 1978, the Congress passed the Natural Gas Policy Act (NGPA) which resulted in increased gas prices. The higher prices increased supplies and decreased demand, thus causing a gas surplus. The unprecedented gas surplus in the 1980's resulted in competition at wellhead but this competition could not be extended to the burnertip due to the monopoly ownership of the gas transportation and distribution facilities. In response to this situation, both federal and state regulatory agencies have issued a number of decisions during the last three to four years which are causing a revolutionary changes in the natural gas industry and it is expected that the competitive forces will play a bigger role than at any time in the past in the restructuring of the gas industry.