Economic Report of the President

first in many cases, and generally to shift production efforts awayfrom cost-minimizing alternatives. The initial boom in the productionof deep gas illustrated this effect.Further problems arise from the control of the prices of new gasuntil those prices are decontrolled in 1985 and 1987. Since oil priceshave risen substantially since 1978, partial decontrol will generate acontinued increase in delivered gas prices in 1985 as consumers bidup gas prices to levels equivalent with those of close substitutes suchas oil. Although real gas prices have risen and real oil prices havefallen in the last year, average real domestic wellhead prices of gaswill rise by about 28 percent between 1983 and 1985 if there is nochange in the NGPA according to a preliminary Department ofEnergy estimate.The price of decontrolled gas is averaged with the price of controlledgas in determining the price to gas users and the demand forgas is affected by prices for fuel substitutes. This is reflected in preliminaryDepartment of Energy estimates which indicate that theaverage 1985 prices of gas under the NGPA are not likely to differgreatly from those that would evolve under full decontrol. Under thepartial decontrol authorized by NGPA, the prices of decontrolled gasare bid up somewhat above the levels that would be observed in afully decontrolled market. Indeed, even now decontrolled deep gas isbeing sold at the wellhead for over $7.00 per million cubic feet. Thepreliminary Department of Energy estimates suggest that the average1985 price under full decontrol will be $3.78 per million cubic feet(both in 1982 dollars).The higher prices to be paid for decontrolled gas in 1985 andthereafter suggest that the average gas consumer will not benefitfrom the remaining controls, and that the primary beneficiaries willbe the producers of decontrolled gas. Under the NGPA, however,different groups of consumers will fare differently. Pipelines withaccess to substantial quantities of price-controlled gas will be able tobid deregulated gas away from other pipelines. This is because thehigher prices on decontrolled gas can be averaged with the lowerprices paid for gas still subject to controls.This means, for some period, that consumers in different regionsmay face different average prices, and that some gas will be reallocatedartifically because of differential access to controlled gas. In particular,the intrastate pipelines will have relatively little access to controlledgas, and so some amount of gas will shift out of the intrastatemarket into the interstate market. Interstate pipelines also will vary intheir ability to bid for decontrolled gas, depending on their access tocontrolled gas and the actions of local regulatory authorities. In summary,in addition to the waste in gas production caused by the104