Energy Secretary Donald P. Hodel told a Senate committee yesterday that if President Reagan's plan to decontrol natural gas prices is enacted the nation probably will find that U.S. reserves of "old" low-cost gas are larger "than anyone today believes."
But Sen. Howard M. Metzenbaum (D-Ohio) charged that lifting controls on old gas--that discovered before 1977--which is relatively "cheap to recover," would give the major oil companies that control more than 70 percent of the old gas "a staggering unearned windfall" that could exceed $172 billion.
The sharp disagreement over decontrolling old gas highlighted the first day of hearings by the Senate Energy and Natural Resources Committee on the Reagan administration's proposal to end all price controls on natural gas by Jan. 1, 1986.
Hodel, in presenting the administration's arguments, contended that deregulating all gas would provide an incentive to companies to produce more low-cost gas, and thus would result in lower prices to consumers.
"One of the issues that we cannot resolve, unfortunately, by any method short of trying this system, is how much old, low-cost gas really exists out there," Hodel said.
"We know some is shut in, we know there has been a tremendous disincentive for money to be spent on upgrading old wells or on developing existing fields which are low-cost fields," he said. "To put your money into drilling a well--even though it is a relatively inexpensive well--when you cannot charge more than 60 cents, or a dollar, or $1.25 per thousand cubic feet for gas has not been an attractive prospect."
While the average price of the old gas being purchased by the major interstate pipelines is $1.38 per thousand cubic feet, the average price of new gas currently is $3.30.
Hodel said the administration believes total decontrol is necessary to provide "a system that generates additional supplies of the lower-cost gas" in addition to the higher-cost gas now being produced and brought to market.
"If we move directly to the free market, the lowest cost gas would move to the market first," Hodel said. "And, I would submit, the chances are very much better if we go to a free-market approach, we will find out there is more potential low-cost gas than anybody today believes."
Senators from both parties, however, disagreed sharply with Hodel's analysis of the desirability of decontrolling old gas.
"Decontrol of old natural gas can only result in significant price increases to the natural gas consumers of this country," charged Sen. John Heinz (R-Pa.). "It has been estimated natural gas bills will increase by 67 percent."
Sen. Frank H. Murkowski (R-Alaska) said almost no one was pleased with the administration bill "except the owners of old gas, and for the reasons they are pleased, all the others are apprehensive."
Metzenbaum, who already has promised to filibuster if necessary to defeat the bill, said the administration should be sued "for false and deceptive advertising" for putting the world "consumer" in the title of its "Natural Gas Consumer Regulatory Reform" legislation.
"A more apt title for this legislation would be the 'Big Oil Giveaway Act,' " said Metzenbaum. "In the end, consumers will become unwilling partners in what may turn out to be the greatest transfer of wealth in this country's history."
Sen. Bill Bradley (D-N.J.) said that if old gas is to be deregulated, a form of windfall profits tax is necessary.
"A simple 'old-gas tax' must be placed on old gas," he said. "Income would be used for low-income assistance and conservation measures."