FIGURE II-1

consumed; and retention of gas burning capability. Long-term supply dependability is not a primary factor.

Thus far, conversions to oil appear to more nearly satisfy industrial needs than coal or electric power. In opting for electric equipment, the ability to use gas is normally lost. Although the purchase price of coal is frequently less than oil, the higher investment and operating costs for coal and the major plant downtimes typically required, appear to more than offset this initial advantage. Other problems associated with conversions to coal are the major space requirements for its handling, storage and preparation, and environmental concerns. Most increases in coal use by industry are expected to be associated with new facilities because only in rare cases can gas-fired industrial equipment be converted to coal.

Legislation provides additional stimulus for fuel switching. Portions of the National Energy Act (NEA) could have substantial negative impact on industrial demand for natural gas. Most prominent are the proposals for boiler conversions to coal and incremental pricing of higher cost gas. The Powerplant & Industrial Fuel Use Act (FUA) is an attempt to shift industrial (and electric utility) boilers from gas and oil to coal by legislative fiat rather than through the creation of economic incentives. As a result, industrial reluctance to shift to coal may be expected. The industrial portion of the Act is summarized below.

New Major Fuel Burning Installations (MFBI)

New MFBI boilers would be prohibited from burning oil
or natural gas. Non-boiler usage at new MFBIs would
be subject to a case by case prohibition. Exemptions
would be allowed for process use, cogeneration facili-
ties, and for compliance with environmental laws.

Existing MFBIS

Existing MFBIs using more than 300 mcf per day must
switch from oil and natural gas use if they are
economically and technically capable.

Since almost 2 tcf of total U.S. industrial consumption in 1976
is estimated to have been burned under boilers, the potential impact of
the legislation is significant. The actual effect of the legislation

48

on the industrial market, however, hinges upon the executive interpretations of the proposed rules for exemption, which include economic, technical and environmental criteria. In the near term, the impact of the legislation is expected to be limited by the small share of gascoal fired boilers among existing industrial boilers.

The incremental pricing provisions of the NGPA provide the economic incentives for industrial boiler conversions that are lacking in the coal conversion program. However, in an effort to prevent load shifting to petroleum products, the bill sets a ceiling on industrial gas prices which is equivalent to the prevailing petroleum alternate fuel price (either No. 2 oil or residual oil depending on the market). The net effect of the ceiling is to limit the economic penalty incurred by industrial gas users who chose not to convert their existing facilities to coal.

The forecast of U.S. industrial gas demand is shown in Table II-7. There are a number of important assumptions inherent in these estimates: Industrial activity is assumed to grow at an average 4 percent per year from 1977 to 1990.

Industrial energy growth is expected to increase only 2 percent
annually as substantial increases in fuel costs result in an
additional 16 percent conservation in the industrial sector
by 1990.

The Powerplant and Industrial Fuel Use Act (FUA) will be
strictly applied and no new MFBIs will be permitted to use
natural gas. If no restrictions were imposed on the fuel
choices of these MFBIs, industrial gas demand in 1990 could
be 10 percent higher. In the most likely event, some natural
gas usage will be permitted in the non-boiler applications of
new MFBIs, thereby increasing the demands shown in Table II-7.
Natural gas is assumed to maintain its price advantage over
oil in those geographic regions where industrial gas is
presently priced below industrial oil. As a result, gas
market shares are projected to return to the pre-shortage
levels in those markets where gas is legally permitted to
compete.

While the incremental pricing provisions of the NGPA are intended to
keep gas prices no higher than regional alternate fuel prices (to prevent
load shedding), there is substantial executive flexibility in the imple-
mentation of these provisions. Since a large segment of the industrial

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