Natural gas deregulation has a lengthy history that dates back to the 19th century. Starting from the mid 1800s, coal was the dominant source from which natural gas was derived. Local governments initially classified natural gas under the distribution industry due to its affect on the market and natural lean towards monopoly.
Eventually, it was decided that one company with a single distribution network was cheaper than two companies with multiple distribution networks. However, local governments once again stepped in and determined that the solution was to regulate the rates the monopolies charged and come up with regulations to prevent those businesses from taking advantage of their power.
Drawbacks of a Regulated Natural Gas Market
While regulating natural gas seemed like a great idea, by the early 1900?s problems began to appear. For example, natural gas was now being shipped between districts, which meant that the markets weren?t separated by municipality any longer. The invention of intrastate pipelines also triggered the delivery of natural gas from city one city to another.
Local governments stepped in and decided to regulate the new markets as well as determine the rates that gas distributers could charge. To accommodate these new changes, both the Public Utilities Commission and Public Service Commissions were established within each state. These government organizations were responsible for monitoring natural gas distribution.
Still, this wasn?t enough to prevent additional problems from arising in the natural gas market. These new problems revolved around natural gas interstate distribution. Innovative technologies now allowed the transportation of natural gas between states, which opened up the same issues local governments faced in previous years. The Supreme Court eventually got involved and came to the conclusion that state oversight of interstate pipelines was actually a violation of the interstate commerce clause of the United States Constitution.
To summarize, these cases defined that the interstate pipeline companies reached beyond regulatory power of state government. It revealed a loophole, which indicated that interstate pipelines were technically unregulated. The federal government had to step in to provide the regulation required.
By 1935, there were 11 holding companies that owned a quarter of the natural gas network. Congress took steps to pass the Public Utility Holding Company Act to reduce a holding company?s capacity to gain excessive influence in the market.
Several years later, the government began to regulate the interstate natural gas seals by passing the Natural Gas Act. The primary driver behind this act was to prevent interstate pipelines from charging higher than average rates.
From this point, there were several acts put into place that had a significant impact on how the country regulated the natural gas market. The Wellhead Price Controls resulted in little to no effort to explore and produce new gas reserves because the price was too low. The result was that natural gas got to customers in some states, while others had to deal with shortages. As a result, many schools and businesses were forced to close.
To solve this issue, congress put forth the Natural Gas Policy Act of 1978 to ensure the following:
- The creation of a single national market.
- Equalization of supply and demand.
- Market forces establish the price of natural gas.
Gas Deregulation (1980s – 2016)
In the early 1980?s there was a large shift in the number of customers switching from natural gas to other energies. The federal government made an attempt to better manage the natural gas market. They set maximum and minimum transportation rates, which opened up the market to competition. This meant that in order to remain an inexpensive option for customers, pipelines were able to offer lower rates.
Eventually, both the natural gas and electric industries became deregulated within many areas of the United States. Today, natural gas deregulation allows pipelines and storage facilities to store and distribute natural gas.
Marketers are companies who then sell that gas to customers. They are responsible for getting natural gas to the consumer. These types of companies could be associates of gas producers and pipelines, as well as utilities. In some cases, they might not even be linked with anyone else in the market.
Today, there are many states the offer deregulation natural gas options to consumers. Some of these states include
New York
New Jersey
Pennsylvania
Washington, D.C.
California
Massachusetts
New Mexico
West Virginia
Georgia
Illinois
Maryland
Michigan
Ohio
Virginia
Supply, Transmission & Distribution
The natural gas industry has a very specific process in terms of their daily operations. These processes can be defined or classified under three main steps:
- Supply
- Transmission
- Distribution
For years local utilities handled all three types of business operations. However, due to gas deregulation laws, competition was introduced to the industry and the three elements were altered to accommodate these new regulations.
Supply
Americans are large consumers of natural gas. In fact, the United States makes up approximately 20 ? 25% of the total worldwide usage. If there isn?t enough, the price tends to increase. If there?s too much the price decreases. As this is the case, there are many factors that have an impact on the supply and production of natural gas. These factors include,
Skilled Workers ? the time it takes to hire and train workers can result in gaps during times when an increase in supply is required.
Equipment Availability ? Drilling rigs are very expensive. The industry doesn?t make it any easier on producers, with prices that fluctuate frequently. Also, when the production of natural gas is lower, the number of required rigs lowers. If production needs to increase again the rigs may not be readily available.
Disruptions ? Weather and delivery disruptions are common occurrences in the natural gas industry. For example, hurricanes can have a huge impact on offshore production for many safety reasons.
Pipeline Infrastructure ? The infrastructure is limited by the fact that it can only deliver so much natural gas at one time. Companies must keep expanding in order to meet demand.
Finances ? It is estimated that production companies will need to invest in capital to maintain their current pace. For small firms, this financial impact can put quite a strain on the industry.
Transmission
Transmission pipelines are responsible for the transportation of crude oil, refined petroleum products, and natural gas. The transmission process itself can mean various things, but the most common include:
- Transporting or moving natural gas from various locations like a gathering line, to a distribution center.
- Transporting or moving natural gas to refining, storage or processing facilities.
Transmission pipelines are constructed from steel pipe and can range from several feet to several inches in diameter. Due to the type of material they transport, they can withstand over 1000 pounds per square inch of pressure and can extend as far as a few feet to over several hundred miles.
These pipelines are owned by many different organizations. However, the Office of Pipeline Safety as well as the Federal Energy Regulatory Commission regulates them.
Distribution
Typically, distribution companies are the entities responsible for delivering natural gas to customers within a defined area. While some large commercial industries and businesses receive their natural gas from pipelines through marketing companies, most consumers get their gas delivered by local utilities.
When it comes to local distribution, natural gas is transported along thousands of miles of pipe. The location or point from which the gas is passed onto the utility is known as the ?citygate?. This is often where and how large urban areas determine price.
Safety is also a high priority for any natural gas distribution company. These safety processes include, leak detection equipment, safety and educational programs, on call technicians, Emergency Preparedness, One Call Systems and more.
