Natural Gas

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Natural Gas

• David Loomis
• Illinois State University

2
OVERVIEW

• Wellhead ? pipeline ? City gate ? LDC ? customer
• direct access
• Few economies of scope - little vertical
  integration

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Wellhead price regulation

• In 1981, 12,000 field producers, all markets
  unconcentrated
• 1954 Supreme Court, Phillips Petroleum v.
  Wisconsin - ruled that producers were able to
  exact excessive prices and that Natural Gas Act
  of 1938 authorized FPC to regulate wellhead
  prices.
• Wellhead prices that were sold interstate were
  regulated since 1954

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Wellhead price regulation (contd)

• 2 tiered gas prices - interstate gas subject to
  Federal regulation
• intrastate gas priced much higher
• caused allocative distortion

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Wellhead price regulation (contd)

• 1978 - Natural Gas Policy Act
• old gas - dedicated to interstate commerce before
  NGPA
• continue price ceilings (amt. Of old gas declines
  as wells are depleted)
• new gas - no price ceiling on Jan. 1, 1985
• price ceilings from 1978-1985 gradually raised

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Wellhead price regulation (contd)

• 1989 Natural Gas Wellhead Decontrol Act lifted
  all remaining wellhead ceiling by 1993.

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Price of Natural Gas Delivered to Residential
Customers in IL
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Price of Natural Gas per Therm for Residential
Customers
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Price Spike Report Data
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Units of Measure

• BRITISH THERMAL UNIT (Btu) -- The standard
  measure of heat energy. It takes one Btu to raise
  the temperature of one pound of water by one
  degree Fahrenheit at sea level. For example, it
  takes about 2,000 Btus to make a pot of coffee.
  One Btu is equivalent to 252 calories, 778
  foot-pounds, 1055 joules, and 0.293 watt-hours.
  Note In the abbreviation, only the B is
  capitalized.

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Conversions

• MMBtu Million BTU (British Thermal Unit)
• THERM - One hundred thousand (100,000) British
  thermal units (1 therm 100,000 Btu).