Analysts Expect Little from Efforts by States to Cut Gas Supplies

By Hayes, Thomas C. | THE JOURNAL RECORD, April 1, 1992 | Go to article overview

Analysts Expect Little from Efforts by States to Cut Gas Supplies


Hayes, Thomas C., THE JOURNAL RECORD


By Thomas C. Hayes N.Y. Times News Service DALLAS _ Campaigns by hundreds of independent drillers to curb bulging supplies of natural gas in the Southwest scored one victory in Oklahoma last week and appear to be headed for others soon in Texas and Louisiana.

Oklahoma Gov. David Walters, a Democrat, signed a bill last week that is expected to reduce annual gas output there by about 5 percent.

The Texas Railroad Commission on Monday scheduled a vote on April 27 on a narrower plan for production cutbacks, and Louisiana is considering a similar measure.

The three states produce nearly half of the nation's natural gas supply, but the production limits approved or under consideration in the three states are weaker than some drillers had sought and will probably have little impact on depressed gas prices.

The Federal Trade Commission has said that blanket restrictions on gas output to raise prices are illegal, but that states can impose some narrower limits. The Oklahoma measure attempts to comply with federal law, but federal agencies are examining it.

At the urging of powerful members of Congress from gas-consuming regions, primarily the Northeast, the Midwest and California, federal regulators are monitoring the states' actions for signs of illegal attempts to rig the gas markets.

But economists and other analysts say supplies are too abundant in areas outside the Southwest for producers here to have any lasting control over prices.

Battered by several years of gluts and depressed prices, the region's gas producers are in turmoil. Gas prices over the last few months have been the lowest of any winter since the 1970s.

Thousands of smaller producers have been driven out of business, many large independent companies are losing money, layoffs have accelerated and drilling has plunged to its lowest level in 50 years.

Giant companies like Mobil, Amoco and Arco, as well as large independents like Oryx Energy and Maxus Energy, have turned more to foreign drilling, where costs are lower and prospects more appealing.

But many of the nation's independent companies, which produce about 60 percent of the domestic gas supply, are too weak financially to consider foreign operations.

Many of them have pressured state officials for help. Regulators in Texas are considering changes, based on historical trends and other factors, in how they calculate monthly production limits for each well.

Drillers in Texas, which produced 27 percent of the nation's gas in 1990, have complained for years that pipeline companies abuse the current system by overestimating how much gas they can sell each month.

Production limits are based on the pipelines' monthly demand forecasts; when forecasts were too high, markets were glutted with gas.

"That process was difficult to follow and was not accurate," Lena Guerrero, chairman of the Texas Railroad Commission, said in an interview.

Appointed last year by Gov. Ann Richards, a Democrat, to the three-member panel that regulates the state's oil and gas industry, Guerrero will be on the ballot for the first time in November. …

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