Natural gas is a mixture of hydrocarbon gases consisting primarily of methane.  It primarily occurs with petroleum deposits.  Apart from methane it consists of ethane, small amounts of propane, butane, and higher molecular weight hydrocarbons.  Sometimes nitrogen, carbon dioxide, hydrogen sulfide, and helium are also found in natural gas.  Usually, natural gas is used for cooking and heating homes.

In United States v. El Paso Natural Gas Co., 1962 U.S. Dist. LEXIS 5863 (D. Utah 1962) the court observed that “natural gas consists primarily of hydrocarbons and is a wasting natural resource.  Along with hydroelectric and steam-generated electric energy, fuel oil and coal, it is an important source of heat and energy.”

Natural gas when compared to other energy sources such as oil or coal is often referred to as simply gas.  Hence, the term ‘gas’ is not compulsorily restricted to manufactured or artificial gas, but may also include natural gas.

Pursuant to 15 USCS § 717a (5), ‘natural gas’ means either natural gas unmixed, or any mixture of natural and artificial gas.  And natural-gas company means a person engaged in the transportation of natural gas in interstate commerce, or the sale in interstate commerce of such gas for resale[i].

Generally, natural gas belongs to the company that dispenses it, until it is sold to the consumer with the aide of meter.  Normally, natural gas produced from a gas well or oil well will not be in a condition for sale to the ultimate consumer.  Before introducing natural gas to a consumer market, the additional constituents such as ethane, propane and butane, helium, nitrogen, carbon dioxide, water vapor, and sulfur dioxide must be removed from the gas stream.

Therefore, the flow of raw natural gas from the well to the consumer includes the following events:

• gathering which includes requisite compression;
• processing and treating; and
• marketing of residue gas.

However, a producer can market or sell its gas at any time.  S/he can sell either at the well or can elect to have the gas gathered and processed by a third party and market the residue gas itself.  Sometimes a producer can build its own gathering lines and processing plant and even take the entire responsibility and concomitant benefit that it entails.

Generally, states,  as a means of protecting the general public, establish and enforce certain regulations upon gas companies.  Accordingly, the gas companies are subjected to regulations under the police power of a state.  A state can delegate its right to regulate a gas company to a municipality in which the company operates.  A municipality in exercise of such delegated power can enact ordinances to protect the public from the dangers resulting from the use of gas.  Hence, certain obligations are imposed upon the gas company by a municipality.

Moreover, even in cases where there is no express delegation of authority to a municipality by a state, the municipalities under its implied and inherent police powers can impose reasonable regulations upon the gas companies operating within their limits.  While imposing such regulations the primary aim of a municipality should be the health, safety, and welfare of its inhabitants[ii].

However, the transportation and sale of gas in interstate and foreign commerce are regulated by the Federal Natural Gas Act[iii].  The safety standards for the transportation of natural and other gas by pipeline are prescribed by the Secretary of Transportation under its power granted by the Natural Gas Pipeline Safety Act[iv].

In situations, where a scarcity of natural gas in meeting natural gas requirements for high-priority uses is felt during a natural gas supply emergency, the President can by order allocate supplies of natural gas[v].  However, a President shall not allocate supplies of natural gas unless it is found that:

• the emergency purchase authority has utilized its maximum extent practicable to assist in meeting natural gas requirements for high-priority uses of natural gas;
• the emergency purchases of natural gas supplies will not satisfy the natural gas requirements for such high-priority uses;
• the exercise of his/her authority is reasonably necessary to assist in meeting natural gas requirements for such high-priority uses; and
• the interstate pipeline or local distribution company receiving such natural gas has ordered the termination of all deliveries of natural gas for other than high-priority uses and attempted its maximum extent practicable to terminate such deliveries.

[i] 15 USCS § 717a.

[ii] State ex rel. Laclede Gas Light Co. v. Murphy, 130 Mo. 10 (Mo. 1895).

[iii] 15 USCS § 717.

[iv] 49 USCS § 60101.

[v] 15 USCS § 3363.