Natural gas prices have risen steeply in the last seven years, both in the interstate market which is subject to federal price controls and the intrastate market which is not.
Today intrastate gas - which is consumed within the same state in which it is produced - can command a price as high as $2 a thousand cubic feet. If the latest Federal Power Commission pricing order survives a court test (which it may not), the price for newly discovered gas sold in the interstate system will be $1.44.
In 1970, natural gas sold for 20 cents or less a thousand cubic feet.
Because of these steep increases, critics contend that gas producers do not need any more price increases and some - including labor unions, organized consumer groups and legislators - have gone to court to try to prevent the latest FPC price increases from taking effect.
Yet natural gas producers say that they need federal de-regulation and the higher prices that presumably would result if they are to continue to explore for and produce natural gas for the interstate system.
The easy, shallow gas has been found, according to independent oil producer J.N. Warren, and if the deep gas is to be found and produced high prices are needed because the costs of drilling rise geometrically with the depth.
Furthermore, according to some economists and oilmen, such as Warren, the price of natural gas in the 1950s and 1960s was not a real one because gas was generally viewed as a by-product of oil and not something to be produced on its own. Things are different today.
Even at $2 a thousand cubic feet, gas is still equivalent in price to a barrel of oil at $12 (lower than the world price). Since gas is a cleaner, more efficient fuel, it should cost more, not less, than petroleum, oilmen say.
Natural gas, which like oil is a result of millions of years of decomposition of animal and plant matter under heat and pressure, today is a major fuel for heating and industrial production but once was considered an essentially useless by-product of oil production.
For years it was flared (burned off at the wellhead), as it still often is in the Mideast, because there was no market for it. But in the 1930s state regulatory commissions, recognizing that gas was a fuel, began to require oil wells to sell the gas as a condition of selling the oil.
Oil producers, then, began to develop outlets for the gas so they could continue to produce the petroleum.
"The cost of recovering it (the gas) bore no relation to the market price because it was a by-product," according to University of Houston oil economist James M. Griffin. "To the oil producer, the cost of recovery was zero."
Pipelines began to be laid to the Midwest and the East. The clamor for federal regulation of gas prices came about in the 1950s. Gas prices rose from 7 to 8 cents at the start of the decade to 15 cents. Still it was cheaper and more convenient than oil and huge markets began to open up for natural gas.
But just as gas demand was rising because it was cheap and clean, oil exploration began to fall in the late 1960s. Most of the big, shallow gas and oil fields had been found. There is little oil to be found below 10,000 feet, so to justify searching for gas, the price must bear a relationship to costs of recovery, Griffin argues.
For example, independent oil producer Warren said, the state of Texas had a shortage of natural gas in the early 1970s, but prices rose and explorers went out to look for gas in deep, small pockets. They found large quantities of smaller deposits that were profitable to produce at the higher prices of today, but would not have even been worth looking for at 1960 prices.
There is a small surplus of gas in Texas now.
Warren, who with his partner Allan C. King owns Goldrus Drilling Co. and Goldking Production Co., agrees that gas prices have risen dramatically since 1970. But so have drilling costs, he says.
With the rich, shallow, inexpensively drilled gas fields (such as Katy in Texas) declining or nearing depletion, the search becomes more expensive.
Warren is confident, as are most oilmen, that there is plenty of oil and gas to be found. But they will have to drill deeper and find it in smaller quantities.
The costs of drilling rise geometrically with the depth. A 19,000-foot well, not an uncommon depth, costs about 100 times more than a 6,000-foot well - the depth of the original Katy wells.
To drill a 6,000-foot today, Warren said, would require about $2,500 of pipe and cementing. To drill 19,000 feet at the Katy Field would require tubular goods costing between $600,000 and $750,000.
That does not count the higher costs of other supplies such as the drilling mud which flows from the surface to the drilling bit and back again carrying with it the chewed up earth, keeping pressure on the earthen sides of the hole so it does not cave in and maintaining pressure on the bit itself so subterranean force does not push it back up through the hole.
On top of that, it takes much longer to drill a deep hole because the going gets rougher the farther the bit goes below the surface.
"We spudded (started drilling) a 9,000-foot well on Jan. 24 that we finished on Feb. 6.It took 13 days," Warren said. (The well, incidentally, was dry.) "A 19,000-foot well - twice as deep - would take . . . well the fastest I know of is 90 days and it could take up to a year," Warren said.
Drilling at Katy is less expensive than other areas. "There are 6-million-dollar wells, where the tubular goods alone cost $1.5 million," Warren notes. Not all of that is drilling costs. "The actual drilling may run $3.5 to $4 million and to complete the well (do the necessary work to bring it into production) brings the total cost to $5 to $6 million."
"It's not so much inflation that drives up drilling costs, but materials, and equipment and mud and drilling time. You need so much more of those."