{
  "id": "RL32091",
  "type": "CRS Report",
  "typeId": "REPORTS",
  "number": "RL32091",
  "active": false,
  "source": "EveryCRSReport.com",
  "versions": [
    {
      "source": "EveryCRSReport.com",
      "id": 101740,
      "date": "2004-12-08",
      "retrieved": "2016-04-07T20:03:31.642781",
      "title": "Natural Gas Prices and Market Fundamentals",
      "summary": "Intermittently high, volatile natural gas prices since 2000 have raised concern among all types\nof\nconsumers. Residential customers have seen gas bills increase dramatically during the heating\nseason. Industrial consumers have seen costs increase, which reduces their competitiveness. \nBecause the price of natural gas at the consumer level is a mixture of market forces and regulation,\nexplaining the behavior of price can be difficult.\n  Debate in the 108th Congress concerning the energy bill ( H.R. 6 ), considered\nprovisions which are intended to improve long term natural gas supplies in the United States. Other\nissues are likely to be brought before the 109th Congress for consideration. This paper analyzes the\nshort term forces which influence the natural gas market.\n  The Energy Information Administration has developed a metric called the effective capacity\nutilization rate as a framework for analyzing the economics of the natural gas market. This measure\nhas been shown to be correlated with the price of natural gas. When as the effective capacity\nutilization rate attains high levels (90% and above) it becomes increasingly likely that tight market\nconditions will yield high prices.\n  As a result of the Natural Gas Policy Act of 1978 ( P.L. 95-621 ) and subsequent legislation in\n1989 and 1992 ( P.L. 101-60  and  P.L. 102-486 ) the wellhead price of natural gas is market\ndetermined. Pipeline rates are federally monitored and distribution charges are regulated at the state\nlevel. Price variability centers on the wellhead price as well as the price determined in futures\nmarkets. \n  Price spikes have occurred in two of the past three heating seasons. Whether severe weather\ncauses price increases depends on the tightness of the market as measured by the effective capacity\nutilization rate. The same level of demand could lead to very different price results if the effective\ncapacity utilization rate is high or low. \n  A variety of factors can affect the effective capacity utilization rate. Since short run supply\nadjusts to meet demand, the weather will be an important determinant. The relationship between\nnatural gas prices and investment in exploration, development and production is an important factor\nin determining productive capacity. The availability of stored gas and imported gas become vital\nto price stability as the effective productive capacity exceeds 90%.\n  In the very short term there appears to be little that can be done from a policy perspective to\nalter the fundamental economics of the natural gas market. In the longer term, policies that slow\ndemand growth and/or encourage the growth of supply, either from domestic or foreign sources\ncould be effective.\n  This report will be updated as events warrant.",
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