The natural gas shortage has dealt a severe blow to the glass fiber insulation industry just as the record cold winter has increased demand for the product here and throughout the eastern part of the United States.

The three largest glass fiber insulation manufacturers - accounting for 80 to 90 per cent of the home insulation market - cannot meet the demands of their customers because of a lack of gas needed for the manufacturing process.

Two of the manufacturers, Owens-Corning and Johns-Manville, are operating far under capacity. The third, Certain-Teed, is operating at slightly less than capacity out is taking no new customers because its supplies already are being rationed among its established accounts.

Although, the situation differs from store to store in the area, with some reporting normal demand and adequate supplies and others reporting demand up and supplies depleted, homeowners in the eastern part of the United States who waited to insulate until the winter weather hit with full force are finding materials hard to get.

The heart of the problem is natural gas, used by the three largest manufacturers to make glass fiber insulation. When natural gas supplies grew short, company representatives said, they were forced to stop using natural gas. A few plants, equipped for such contingencies, were able to switch to propane gas which is more expensive and must be used in greater quantities than natural gas.

Certain-Teed, the only one of the three manufacturers able to operate anywhere near capacity, uses fuel oil and propane when natural gas is not available for manufacturing.

According to Jerry Hansen, vice president of Asbestos Covering and Roofing Co., one of the largest wholesale and retail insulation contractors in the area, the supply situation is "really critical . . . more critical than it's ever been."

Hansen said retail sales are up 100 per cent over last year and sales to building contractors, who have been hampered by the weather, are down 8 to 10 per cent. Hansen said he has been giving preference to builders because "they're the blood and guts of our business" and because failure to supply them will stop their work.

"We have been getting limited supplies," Hansen said. "We're kind of limping along. I'll be all right next week if the supplies I've been promised come in."

Dan Bonthron, district manager for Owens-Corning - the largest manufacturer of home insulation materials - estimated that in the Maryland, Virginia and Washington area, his company is able to meet less than 20 per cent of the demand for insulation.

Bonthron said Owens-Corning's three closest plants - in Newark, Ohio; Fairburn, Ga., and Barrington, N.J. - are shut down. What supplies Owens-Corning now has in the East are coming from its plant in Delman, N.Y., which uses propane, or from plants in Texas, Kansas or California.

But even where insulation is being shipped east at increased cost to the company, according to Bonthron, another obstacle has been encountered: "Railroad cars are stuck a lot of places because of the cold weather," he said.

Herbert Hicks, a sales representative for Johns-Manville in the metropolitan Washington area, said that demand for insulation is "considerably heavier than normal," although he attributed part of the increase to the ability of his competitors to supply their regular customers.

"We have a number of accounts we serve in the metropolitan area, but we're not able to keep up with those," Hicks said. "We're getting demands from people we normally do not deal with and we jsut have to turn those down. We just don't have any product to sell to them. When we get out of this is anybody's guess."

According to George Hoffman, vice president of sales for Certain-Teed, the only manufacturer still producing anywhere near its normal capacity, business is "extremely good" but his company cannot meet the demand.

"Right now," Hoffman said, "we can't take on any new customers. With an old customer we have a legal and moral obligation."

Hoffman, whose office is in Valley Forge, Pa., said his estimate reflected a view of the entire nation, not just the Eastern United States.

Another almost inevitable byproduct of the natural gas shortage and the switch to propane and fuel oil in the manufacturing process is that costs of insulation will probably increase.