The MacNeil/Lehrer Report; Natural Gas Shortage

ROBERT MacNEIL: Good evening. Tonight the latest on the fuel crisis caused by the big freeze in the eastern half of the country. Both houses of Congress grappled today with President Carter`s request for swift legislation to permit better distribution of natural gas by temporary deregulation of the price. But people in effected states are asking tonight, "Is the crisis real or contrived by producer states to win deregulation and higher prices." So we ask, "Is the crisis real? Is there enough gas to go around? Will private homes continue to get supplies? Will Carter`s legislation solve the crisis?" Jim?

JIM LEHRER: Robin, the crisis situation in the eastern two thirds of the country grows with each new, cold day. There have been 75 deaths. Some 1.5 million Americans did not go to work today. Several thousand school children stayed home. Fourteen states are most severely effected. Areas in Virginia, Maryland and Florida have been formally declared federal disaster areas. Emergency declarations to qualify for federal disaster funds are also in effect in Pennsylvania and New York. New Jersey has also applied for federal aid. Other states in various types of emergency situations are Georgia, Illinois, Indiana, Kentucky, Ohio, South Carolina, Tennessee and West Virginia. The focus is mostly on natural gas and attempts to cut public consumption. They range from voluntary efforts to emergency edicts which require residents to keep their thermostats at 65 degrees or lower. And most everyone from President Carter on down says its worse before it gets better, primarily because the U.S. Weather Service 30 day forecast for February predicts a solid continuation of below normal temperatures.

The federal agency with much of the responsibility for coping with the natural gas situation is the Federal Power Commission, and Richard Dunham is Chairman of the FPC.

Mr. Dunham, the number on question tonight is simply whether or not this natural gas shortage is real or contrived. Which is it sir?

RICHARD DUNHAM: There`s no question in my mind but what it is real. We have for a number of years in this country been using natural gas at roughly twice the rate that we`ve been finding new gas reserves. It`s a long term trend that been in existence for six or seven years. What`s made it particularly critical this year is what I call the intersection of this declining supply of gas available in the United States with this extraordinary winter we are now having, this very exceptional thing which increases demand proportionate with the increase in cold.

LEHRER: Well, Mr. Dunham, Senator Metzenbaum of Ohio, another Ohio Congressman, and an executive from a gas company in Nashville, Tennessee all said right out today that the producers are deliberately withholding gas supplies until the price goes up and that there is in fact no shortage.

DUNHAM: Last week, to give you an example, all the pipeline companies searched to get additional supplies to buy. We had waived some procedures in the Federal Power Commission to enable them to come in at essentially a higher price then the FPC established price, and because of the cold wave in Texas and other producing areas there literally was no gas available at any price. What they may have been referring to is that there are reserves underground that have not yet been drilled or are producable at the moment. But I have no knowledge of gas being withheld.

LEHRER: What I`m really asking, I guess, and just to be blunt about it, are you as Chairman of the Federal Power Commission satisfied that there`s no hanky panky going on that caused this severe, natural gas shortage?

DUNHAM: I think, as I made my earlier point, what makes it critical is this intersection of declining reserves which has gone on for a number of years and this extraordinary, high cold winter.

LEHRER: Do you know, as you sit here tonight, how much natural gas we have available in this country?

DUNHAM: There`s all kinds of estimates. The important thing is how available is it. There are estimates of gas in very deep well areas both in the United States and off shore. All of it is in a sense experimental to get it out of the ground, and it`s certainly very, very expensive. Particularly what we call "deep drilling." In the United States, the easy reserves have been found, those that are producable immediately. The other reserve has been identified, but it`s more dispersed, more difficult to get out. In some cases we don`t have the technologies to get it out. So there is more gas. There are all kinds of estimates on the amount, but of course the important thing is how easily can we get it out, and at what cost can we get it out.

LEHRER: Well, do we have enough to get through this next 30 days of severe winter if, in fact, the weather forecast is correct?

DUNHAM: It depends on what you mean by "getting through." I feel that with the President`s bill and that authority we will be able to allocate gas to what is defined in that bill as the basic human needs area. That means residences and small, commercial, and some hospitals, and some critical needs like that. When you are talking about can you resume quickly additional supplies at the level we were using them in the last few months, I would be very skeptical about that possibility in the next 60 days.

LEHRER: But you mentioned homes, et cetera. What I`m really, I think, asking is the emergency situation going to have to continue for the next 30 days?

DUNHAM: There`s no question in my mind that it will have to continue for the next 30 days, particularly based on the assumption of the weather forecasts that the weather bureaus are giving out.

LEHRER: Closed down plants, schools closed, bare essentials meaning homes and hospitals, and that`s about it.

DUNHAM: It depends on the area; it depends on the state involved, but we certainly have to talk about that threshold level of only maintaining that. I`m very hopeful the weather ameliorates or, as a result of the President`s bill, it will be possible to reallocate some supplies. But basically that bill is intended to allocate only for these human needs areas.

LEHRER: Thank you. Robin?

MacNEIL: Yes. One of the largest natural gas companies which the Federal Power Commission oversees is Panhandle Eastern Pipeline Company. It is one of the five largest and one of the oldest natural gas transmission companies in the nation. Its President and Chief Executive Officer is Richard L. O`Shields. He is also the current Chairman of the industry`s national trade association called the Interstate National Gas Association of America.

Mr. O`Shields, just to pick up on the question Jim was asking the Chairman, this is the question the public continues to ask and be skeptical of, is there now a real shortage of gas supplies or is it merely a distribution shortage caused by the reluctance of producers to sell gas at the regulated, lower, interstate price?

RICHARD O`SHIELDS: No, Mr. MacNEIL, there is a real natural gas shortage that has been growing for nearly eight years, and it has reached the point where the shortage that we now have combined with this extremely cold weather is dealing up hardship in many areas. It is true that the shortage has been confined primarily to the interstate, natural pipeline systems because of federal price regulations.

MacNEIL: Because the producers prefer to sell it where they can get their higher price in the producing states.

O`SHIELDS: But Chairman Dunham`s observation was correct that over the last eight years, with the exception of the discovery and development of the giant, crude oil bay field in Alaska, our country has been consuming natural gas at more than twice the rate at which it has been finding and developing natural gas reserves.

MacNEIL: Is any producer or pipeline company in the producing states now sitting on easily accessible reserves which he could ship interstate if he got the price that he wanted?

O`SHIELDS: Not that I am aware of.

MacNEIL: James Schlesinger, the President`s chief energy advisor, said yesterday we are presently using up our February and March gas supplies. Does enough gas exist to get us through this winter?

O`SHIELDS: I think there is enough gas to get us through this winter without having too many instances of real, hardship situations, but there isn`t enough gas to be able to get through the winter and maintain service to all of the industries that rely on natural gas, so there will be economic hardships associated with it. This winter -- certainly in our market area -- has been 35 to 40% colder than normal.

MacNEIL: Your market area is largely the northern Midwest is it not?

O`SHIELDS: The upper Midwest. Most of our distribution customers have had more cold winter weather up to this date than they usually experience up into the month of March.

MacNEIL: Have you been able to honor your contract commitments up till now?

O`SHIELDS: No. Our pipeline as most every interstate pipeline company has been forced due to the growing shortage of recent years, to curtail sales. We have had curtailment plans in effect for over four years.-.And our deliveries are some 20 to 25 below the contracts that were in effect and below the deliveries that we were malting in the early 70`s.

MacNEIL: Putting on your hat as the Chairman of this trade association and looking at this whole picture, from what you know of the supplies that are available, what does "getting through the winter" mean? Does it mean, as the Chairman suggested, just absolutely minimal gas for factories and keeping gas to homes, or is it going to get so bad that if the weather stays cold there will have to be curtailments of people heating their homes with gas?

O`SHIELDS: The situation certainly will vary from area to area depending on the circumstances. With continued, severe cold weather there will be areas where there will be days at a time where schools and factories will remain closed so that the available supplies will be used for keeping people warm and keeping hospitals going.

MacNEIL: You do not see a danger, yet, as Mr. Schlesinger and I see suggested yesterday. He said he warned that gas deliveries to homes in some states might be cut off in a few weeks, indeed, in a few days, and he said the full seriousness of the situation hasn`t sunk in. Do you actually see people having home supplies cut off at all?

O`SHIELDS: This is a real possibility in some, limited instances, and the President`s proposed legislation is designed primarily to mitigate such circumstances. It is possible.

MacNEIL: Let`s come back to the President`s legislation after we`ve heard from another gentleman in Washington. Jim?

LEHRER: Yes, Robin. Once the natural gas reaches its destination on Mr. O`Shields` or some other pipeline, the decision must then be made on who gets it. And there are some rough guide lines from the FPC, but basically, particularly under the emergency situations now, it`s up to the states to make that determination. In New York State, it falls to the Public Service Commission, and Alfred Kahn is Chairman of that commission.

Mr. Kahn, first, could you give us an over view of exactly how bad the situation is in your state.

ALFRED KAHN: Well, it`s hard to say exactly how it is. One doesn`t have a yardstick. It`s serious. It`s very severe. As of this morning there were something like 250,000 people out of work in New York; 2100 industrial plants; tens of thousands of stores. So it`s obviously very hard on people, especially in a state that has above average unemployment anyhow. But we have gas going to homes. We think we can continue to have it going to homes. We think we can keep milk processing plants and bakeries open. We can keep food stores open, at least for reduced hours. 7e can`t ever be sure, but it`s very, very hard on all of us obviously.

LEHRER: What have you been able to do on your own as a state to get more natural gas? Are your hands tied? What is that process?

KAHN: There`s not a lot one can do in a short run. Over the last five years, New York, recognizing the growing gas problem, has imposed restrictions on attaching new houses or even new, industrial customers even though we badly needed the jobs, and in addition we have encouraged some of our companies to bring in liquefied natural gas and SNG, synthetic natural gas facilities. So we have engaged in such self help measures as we could, and therefore, for a while as a matter of fact, we were somewhat better off than our neighbors. But in the last analysis we are dependent on the gas that we get from the interstate pipelines, and during the last few weeks as we sat by our phones on a moment to moment basis the situation has deteriorated and deteriorated. One thing we can do is try to spread the hardship within the state.

LEHRER: How do you go about doing that? Making a decision as to who gets gas and who doesn`t get gas?

KAHN: It`s not easy, but somebody has to use his judgment. About two weeks ago when it appeared in the major, upstate area served by Niagra Mohawk, we were going to have to close down not just those industrial customers who have alternative fuel capacity but those who were firm customers who depended on gas. We turned to Brooklyn Union which has been one of the most aggressive and enterprising companies in the state in developing alternative supplies and asked them to draw down their liquefied, their LNG reserves. So they made available 25 million cubic feet a day to Niagra Mohawk and another ten to another company. For a while we were able to preserve jobs. I suppose you would have to say we think that obviously first comes keeping people alive and reasonably comfortable in their homes. But our second need-is jobs. No point keeping homes at 70 degrees if people are out of work, so we have tried in such cases to transfer. Then what happened was that the pipeline serving Brooklyn Union, Transco, began to come in again, hour by hour, with deeper and deeper curtailments, and Brooklyn Union had to cut if off. Now industry is closed all through the state with one exception downstate this morning. Brooklyn Union and Con Ed turned up some supplies. They had to pay a steep price, but they turned up some extra supplies, so we are serving some industry.

LEHRER: Mr. Kahn, you`re very knowledgeable about this whole area of natural gas. What is your view of this question of whether or not this is a real shortage or a contrived shortage, or whether people are being had?

KAHN: I think, Mr. Lehrer, you have to distinguish the long run situation from the immediate one. I don`t have any doubt that in the long run supplies have been denied to the interstate market for the obvious reason that the price was fixed at 52 cent, and the people producing could get $1.50, $1.65, and $2.00 selling within the state, so we began to find that we were getting decreasing percentages of new gas discovered within the producing states, and it not down almost to zero. I don`t have any doubt either that the amount of drilling effort that the producers engage in is sensitive to price. And, in fact, you can see it on shore. When the intrastate price went up, the drilling activity increased. So I don`t have any doubt, as I say, as a long run proposition we would have more gas today if we had deregulated price. Whether there is a conspiracy or not, I don`t know. I`m very suspicious of conspiracy theories. You have 8,000 or so producers, and it would be just what you would expect that they would put more money into drilling if the price were higher than lower.

In the short run, I just don`t think there`s the slightest question it is the weather. Look, our companies plan for a severe winter. That means something like 8% worse than normal. Our winter has been 30% worse than normal. Now there is no way in the world that you could sit on that kind of capacity waiting for the worst winter in 100 years in order, somehow to extort it from the people. It`s clear that we`ve been operating all out. Our storage capacity is going down; the pressures are declining. There`s just sufficient explanation in that way, so it`s just very hard for me to believe.

LEHRER: What has been your experience in dealing with the pipelines and the producing companies in the producing states? Have they been willing to help you out of your problem, or has it been a less than cooperative spirit?

KAHN: We don`t really deal with them directly. In the case of yesterday afternoon, Con Edison of New York turned up some extra gas from Pacific Gas and Electric -- which obviously it didn`t transport across the country but bumped by shifting supplies through the pipelines. And I`ve forgotten where Brooklyn Union succeeded in buying some gas in northern Illinois. But for the most part the supplies that we get from the pipelines are restricted across the board, and bargaining with them at this level as compared with going down to the Federal Power Commission and fighting like hell for our share of the allocations, bargaining at this point doesn`t serve much purpose.

LEHRER: They don`t have anything to bargain with, is that what you are saying?

KAHN: The Consolidated Natural which serves most of our upstate companies we understand is now down to 30% of storage, and pressure is dropping. Now that`s just a dangerous situation.

LEHRER: Explain that very quickly. What does that mean? Why is that such a crucial problem when the pressure drops?

KAHN: I`m going to have to explain it in words of one syllable because that`s all I understand. I`m an economist.

LEHRER: That`s great!

KAHN: My understanding is that you can`t operate a system wide open indefinitely, that as you get down towards the lower portion of your storage you don`t know apparently. My engineers keep telling me they don`t know exactly when it may happen that the pressure will drop severely enough so that you may begin to get pilot lights going out in parts of the state. Now it`s precisely to avoid that that we declared our state of emergency and then got the Governor to do it. And I should point out that we are getting a very satisfying, voluntary response from out people for turning down thermostats.

LEHRER: Mr. Kahn, thank you. Robin?

MacNEIL: Yes, Jim. None of our guests support the idea that the shortage is artificial or contrived. Let`s move on to whether Mr. Carter`s plan will temporarily solve the problem for the moment. And then we`ll move on to the longer term thing.

Mr. O`Shields, do you think that the Carter bill will solve it for this winter?

O`SHIELDS: The President`s proposal will increase the flexibility of pipelines and distribution companies to move some, limited gas supplies which might be made available to the points of greatest need. The pipeline industry and the natural gas industry has had a long history of voluntarily taking care of emergencies, and we continue to do that, but when every pipeline in the business is under curtailment, the amount of voluntary transfers that can be done is extremely limited if nonexistent. This legislation would permit such transfers. It will be of considerable assistance to isolated instances. I don`t think the President nor Dr. Schlesinger, nor I would say that it is an absolute assurance that it would cure every emergency that might arise.

MacNEIL: You think it`s the best way to go at the moment with the federal government?

O`SHIELDS: I think it is the only way to go to increase the flexibility so that everybody in this country can do everything in their power to assist people who might be in real trouble.

MacNEIL: I see. Do you quarrel with that at all, Mr. Dunham? You are the one presumably who would have to administer this if it is passed.

DUNHAM: The President hasn`t made that decision yet.

MacNEIL : I see.

DUNHAUJI.: Because the bill vests the authority in the President. There`s no question in my mind but it, at this stage, at this time, it`s the only possibility for assisting in these human need areas.

It`s both a question of being able, as Mr. O`Shields said, to move with more flexibility than we can under existing procedures. It also provides the mechanism for allocating perhaps whatever additional surprise we might get from our friends across the border in Canada who have been most helpful in this current situation and what ever other supplemental supplies that might become available almost on a day by day basis. There`s no question but that it increases the flexibility and the opportunities for assisting in this threshold level of human needs area.

MacNEIL: Do you think that given continued severe weather as is forecast that even this bill will not absolutely guarantee beyond any doubt that there won`t be some severe hardships here.

DUNHAM: Of course there`s no such thing as an absolute guarantee because that depends on the extremity of the weather. This whole situation is extremely temperature sensitive. We had a slight moderation over the week- end of what we thought was coming, all of which was worse than what was anticipated earlier in the year I might add, but during this last week-end, a slight, slight, slight improvement in the pressure capacities of pipeline did occur which was resulted I think from this weather situation and the conservation which is beginning to take hold throughout the country, that real, substantial increments of gas supplies are made available through conservation.

MacNEIL: Mr. Kahn, do you think in the short term Mr. Carter is doing the right thing in this?

KAHN: I think he is doing the right thing but not enough. I don`t think there is any question. We have to pass this bill, and probably pass it without amendment so it goes through. But there are several things I think that could be done to make the hardship less. My staff tells me that there are areas of the country in which people are bringing gas who do have the capacity to burn alternate fuels. And at our request, Governor Carey wired President Carter, either late yesterday afternoon or this morning, asking him to order cut-offs to people all over the country who have the option of burning alternative fuels. Given the hardships we`re all suffering that seems sensible. Secondly, the bill permits the President in case of emergency to reach in for supplies of gas that are under control of interstate pipelines elsewhere, but it explicitly leaves out the possibility of reaching in and taking gas that is being burned or used within the producing states. Intrastate gas is out of that control. Now, as a general proposition you get into a very difficult business if you try to equalize the employment all over the country, but if we are talking about a time of emergency, of genuine hardship, then it seems to me that.

LEHRER: In other words, you`re saying that he should be able to dip down and say, "Okay, I`m going to take some of your intrastate gas, Texas, or Louisiana?"

KAHN: Precisely. Let them be repaid at a decent price, but let`s have that gas.

MacNEIL : Okay, Jim?

LEHRER: Yes. Of course the one point we have to make here in terms of the Carter legislation is that it`s not going to give us any more gas. It`s just a way to distribute what limited gas we have. Do we all agree on that, Mr. O`Shields?

O`SHIELDS: That`s basically correct. The emergency purchase authorization that`s part of the bill is an extremely important phase of it. To enable interstate pipeline companies and large distribution companies in non- producing states to have the ability to purchase supplies which may become surplus in producing states when their weather begins to moderate, to restore storage. This is a big problem for next winter.

LEHRER: all right, let`s move to next winter and the winter after that, and the winter after that, and after that to the long range thing in the couple of minutes we have left.

You mentioned a while ago, Mr. Kahn, you said that if gas had been deregulated we might not be in this situation we`re in. Did you .

KAHN: I certainly didn`t mean that. I think this is very important for us to say because a lot of silly things are being said about deregulation. If we had deregulated, and I was one of the architects of regulation, but I think it`s bankrupt now. If we had deregulated, we would have had more gas, but we also would have had more customers hooked up with that gas. We would not have had the restrictions we have had in the last few years. When you then get the worst winter in 100 years or whatever this is, you would be, in my judgment, precisely in the same situation as you are in now.

LEHRER: Just cost more.

KAHN: That`s right. We`d have more people using gas, but they would all be just as tactically tied in to gas, only more of us than we are now. The only way you could have said that we would be able to avoid this situation would be if we developed large reserves of producable reserves of gas and sat on them. Now it just does not make sense to do that for one winter in 100 years.

MacNEIL: I don`t think Mr. O`Shields agrees with that, Jim. I don`t know whether you can see him, here.

O`SHIELDS: Not completely. I agree that a hundred year winter would cause problems under any circumstances, but if we had had deregulation for the last eight or ten years and had market clearing prices, the balance established in the market, in my judgment, would have been such that the industry would have been better equipped to cope with a hundred year emergency. Now, we have some distribution companies who say they could make it in good shape now if they had their full contract quantities.

LEHRER: Last word to the Federal Power Commission.

DUNHAM: I don`t know that I have got time to get into all of the nuances of that argument which has been going on I guess about 20 years. Obviously there are merits to both sides of the problem.

LEHRER: That`s a good political answer. We`ll leave with that. Robin?

MacNEIL: I think that`s a shame we have to leave it there, but that`s something we`ve argued many times on this program. Thank you very much in Washington. Thank you Mr. O`Shields. Jim Lehrer and I will be back tomorrow night. I`m Robert MacNeil. Good night.