Natural Gas Wellhead Decontrol Act of 1989, United States
Published: August 21, 2008, 7:52 pm
Updated: August 21, 2008, 7:52 pm
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Cutler J. ClevelandThe Natural Gas Wellhead Decontrol Act (NGWDA) of 1989 amended the Natural Gas Policy Act of 1978 (NGPA) by moving the date for the removal of all price ceilings from January 1, 2000 to January 1, 1993. One of the immediate objectives of the NGWDA included mitigation of natural gas market imbalances that had developed during the 1980s due to the pricing provisions of the NGPA. These pricing provisions brought about an increase in natural gas production while allowing monthly incremental price increases for many categories of old gas.
Congress expected to see minimal immediate impact from the legislation since gas wellhead market prices at the time usually remained below most price ceilings. Under the influence of the NGWDA, overall wellhead prices would better reflect market conditions. New and renegotiated contracts would eliminate restrictive pricing and the take-or-pay clauses that had become even more prevalent after passage of the NGPA, hampering industry adjustments to changing market conditions. After passage of the NGWDA, natural gas spot market and transportation service markets expanded, while the merchant role of natural gas pipeline companies steadily declined.
At the time the NGWDA of 1989 was enacted, more than 60 percent of the domestically produced gas was already price decontrolled, and another 33 percent had never been subject to NGPA price controls. Although the NGWDA's impact was limited mainly to shortening the period for removal of all remaining gas price controls, it did help eliminate lingering pricing distortions stemming from the NGPA. It also made possible the increased marketing of certain gas reserves, such as tight-sands natural gas, where contract prices tied to regulatory ceilings had once kept its price above market clearing levels. Under NGWDA decontrol (and subsequent Federal Energy Regulatory Commission policy changes such as Order 490, which provided a mechanism allowing some gas supplies to be released from producer/pipeline contracts and sold at market prices), the natural gas spot market and transportation services market expanded, while the merchant role of natural gas pipeline companies steadily declined.
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Ida Kubiszewski PhD (Lead Author);Cutler J. Cleveland (Topic Editor) "Natural Gas Wellhead Decontrol Act of 1989, United States". In: Encyclopedia of Earth. Eds. Cutler J. Cleveland (Washington, D.C.: Environmental Information Coalition, National Council for Science and the Environment). [First published in the Encyclopedia of Earth August 21, 2008; Last revised Date August 21, 2008; Retrieved May 23, 2013 <http://www.eoearth.org/article/Natural_Gas_Wellhead_Decontrol_Act_of_1989,_United_States>
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Dr. Ida Kubiszewski is a Senior Lecturer at the Crawford School of Public Policy at Australian National University. She is also a co-founder and former-Managing Editor the Encyclopedia of Earth. Dr. Kubiszewki is currently working as the Managing Editor for a magazine/journal hybrid called Solutions. Solutions is an outlet for discussions focusing on solutions to the complex problems we are now facing in ... (Full Bio)
The Natural Gas Wellhead Decontrol Act (NGWDA) of 1989 amended the Natural Gas Policy Act of 1978 (NGPA) by moving the date for the removal of all price ceilings from January 1, 2000 to January 1, 1993. One of the immediate objectives of the NGWDA included mitigation of natural gas market imbalances that had developed during the 1980s due to the pricing provisions of the NGPA. These pricing provisions brought about an increase in natural gas production while allowing monthly incremental price increases for many categories of old gas.
Congress expected to see minimal immediate impact from the legislation since gas wellhead market prices at the time usually remained below most price ceilings. Under the influence of the NGWDA, overall wellhead prices would better reflect market conditions. New and renegotiated contracts would eliminate restrictive pricing and the take-or-pay clauses that had become even more prevalent after passage of the NGPA, hampering industry adjustments to changing market conditions. After passage of the NGWDA, natural gas spot market and transportation service markets expanded, while the merchant role of natural gas pipeline companies steadily declined.
At the time the NGWDA of 1989 was enacted, more than 60 percent of the domestically produced gas was already price decontrolled, and another 33 percent had never been subject to NGPA price controls. Although the NGWDA's impact was limited mainly to shortening the period for removal of all remaining gas price controls, it did help eliminate lingering pricing distortions stemming from the NGPA. It also made possible the increased marketing of certain gas reserves, such as tight-sands natural gas, where contract prices tied to regulatory ceilings had once kept its price above market clearing levels. Under NGWDA decontrol (and subsequent Federal Energy Regulatory Commission policy changes such as Order 490, which provided a mechanism allowing some gas supplies to be released from producer/pipeline contracts and sold at market prices), the natural gas spot market and transportation services market expanded, while the merchant role of natural gas pipeline companies steadily declined.
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