Oilpatch History

U.S. Announces New Policy On Natural Gas Imports

by Rick Charland

All United States importers of natural gas, including those with pending applications, must submit statements by April 16 to the American government indicating the extent to which import contracts meet new policy guidelines announced Thursday by Secretary of Energy DONALD HODEL.

The new guidelines of the U.S. ECONOMIC REGULATORY ADMINISTRATION (ERA) to be officially released today require contracts to be market competitive and flexible enough to respond to changes in market conditions.

Hodel at a news conference in Washington said the U.S. will over the long term need imported gas but added his government's objective on imports is "that a supply of gas supplemental to domestic production be available to the American consumer at competitive prices while avoiding undue dependence on unreliable sources of supply."

Simultaneously with the Hodel announcement, RAYBURN HANZLIK, administrator of the ERA, issued a procedural order to implement the new policy. Today a 36-page document containing the new import guidelines is being released.

The procedural order directs all U.S. gas importers with pending applications (there are 1 pending) to review their proposed contract arrangements and make modifications as necessary to comply with the new policy.

Importing companies now importing natural gas are also directed to assess existing contract arrangements and to report to the ERA (again by April 16) on the extent to which the contracts conform or run counter to the new policy guidelines.

If an existing import contract is not consistent with the new policy, the importer will be "encouraged" to work with its foreign suppliers to achieve a more competitive arrangement. Thus for all pending imports, the new guidelines must be met while existing importers are encouraged to alter contracts to meet the new guidelines.

U.S. imports of gas accounted for roughly five percent of total supply in 1983 with 78% of all imports coming from Canada, 14% from Algeria and eight percent from Mexico.

U.S. officials said Thursday the market competitiveness of any gas import contract will now be based on a number of factors including price, take-or-pay levels, make-up rights, the need for gas in a given market area and security of supply. There will be no priority ranking of these factors and the border price of natural gas will no longer be the main determinant of competitiveness.

Also important will be the flexibility of the contract to permit price and volume changes to suit changing market conditions. The guidelines also stress the limited role governments should play in the gas trade; as one government official put it "prices and contracts must rise and flow with the market."

The guidelines are not binding or inflexible but rebuttable assumptions and the burden of proof will be shifted to opposing parties to show the contract in question does not meet the new guidelines. Each import contract will be reviewed on a case by case basis.

According to one official, the guidelines do not specifically call for an end to the current uniform border price now in effect for Canadian gas exports to the U.S., however, the thrust of the guidelines indicate the uniform border price is no longer relevant.

The U.S. government does not intend to take unilateral action on existing gas imports but will require U.S. importers to review existing contracts and report to the ERA whether they meet or not the new guidelines. If they do not importers will be encouraged to adjust the contracts through negotiation with suppliers.