A Study of the Length Specified in Gas Producers' Interstate Sales Contracts.

The purpose of this paper is to establish the length specified in interstate sales contracts executed by natural-gas producers. The inquiry is timely in that the United States Federal Power Commission is presently formulating policies regarding the types and extent of regulation appropriate to the interstate gas industry. The Commission since 1938 has regulated interstate transmission companies in a fairly rational, predictable manner. However, producing companies, the industry sector, which came under federal control only in 1954, do not yet know what to depend on as federal policy. The Commission has often claimed that it has too little information about the industry and insufficient staff to organize and analyze the data it already has available. The length of a producer's contract to sell gas is an important feature despite the dedication of the attendant gas reserve to the interstate market. Length of contract is an important aspect of the parties' future ability to modify the sales agreements. This ability shows up most vividly in the opportunity to negotiate an end-of-term price increase up to the limits of the area guideline but also has meaning for all other marketing factors, which may be written into the sales contract.