Mobil Oil Corp. v. Federal Energy Administration

• Decision Date: 23 November 1977
• Docket Number: No. 5-25.,5-25.
• Citation: 566 F.2d 87
• Parties: MOBIL OIL CORPORATION, Plaintiff-Appellant, v. FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Administrator, Federal Energy Administration, Defendants-Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

566 F.2d 87

MOBIL OIL CORPORATION, Plaintiff-Appellant, v. FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Administrator, Federal Energy Administration, Defendants-Appellees.

No. 5-25.

Temporary Emergency Court of Appeals.

Argued September 23, 1977.

Decided November 23, 1977.

Leo J. Hoffman, Strasburger & Price, Dallas, Tex., with whom Charles S. Lindberg and Richard L. Hoffman, New York City, were on the brief, for plaintiff-appellant.

Bruce G. Forrest, Dept. of Justice, Washington, D. C., with whom Barbara Allen Babcock, Asst. Atty. Gen., and Stanley D. Rose,^* Washington, D. C., were on the brief, for defendants-appellees.

Before CHRISTENSEN, INGRAHAM and JAMESON, Judges.

JAMESON, Judge:

This appeal presents the question of whether the Emergency Petroleum Allocation Act of 1973 (EPAA)¹ authorizes the Federal Energy Administration (FEA) to provide for the allocation and price control of natural gas liquids, including condensate. The appellant, Mobil Oil Corporation, brought suit for declaratory and injunctive relief, alleging that FEA is without authority to regulate the liquid hydrocarbon products recovered from natural gas and that the regulations and orders of the FEA purporting to do so are invalid.

In a well reasoned opinion the district court granted FEA's motion for summary judgment.² The court concluded that under the EPAA the FEA has authority "to regulate the allocation and pricing of all liquid petroleum products recovered from the `wet' natural gas stream, including condensate, natural gas liquids and natural gas liquid products recovered at gas processing plants (propane, butane, and natural gasoline) except ethane, which is expressly exempted from regulation by Section 3(6) of the Act . . . ." We affirm.

CONTENTIONS ON APPEAL

Mobil contends that (1) the authority granted the FEA under the Allocation Act "extends only to liquid hydrocarbons produced from oil wells (i. e., `crude oil,') and the products of refineries which refine such crude oil (i. e. `residual fuel oil and refined products')" and not "to natural gas or any of the liquid hydrocarbon substances which are recovered from natural gas"; (2) issues of material fact were developed in the district court with respect to the meanings of the terms "condensate" and "natural gas liquids" in the industry, and summary judgment accordingly was improper; and (3) in the alternative, if this court agrees with the district court that there are no genuine issues of material fact, the decision of the district court should be reversed and Mobil's motion for summary judgment be granted. Preliminary to a consideration of these contentions, we set forth a description of the products involved and relevant statutes, regulations and orders.

DESCRIPTION OF NATURAL GAS LIQUIDS

Natural gas liquids are the liquified hydrocarbons recovered from "wet" natural gas. They include, but are not limited to, ethane, propane, butane, propane-butane mixtures, pentanes, natural gasoline and condensate.

Condensate exists as a natural gas in the underground reservoir and is condensed from the gas and recovered as a liquid. It is mechanically extracted from the natural gas produced from gas wells by separators located at the wellhead, a central facility in the field, or at a gas processing plant before the remainder of the gas stream is processed.³ It consists primarily of the heavier hydrocarbon compounds and is used as a refinery and petrochemical plant feedstock. It is generally considered the equivalent of a light crude oil.⁴

After the condensate has been extracted, the liquid hydrocarbons are fractionated at a gas processing plant into the component parts—ethane, butane, propane and natural gasoline.⁵ Ethane, butane and propane are also recovered from crude oil in oil refineries as a result of molecular changes occurring in the refining process. These refinery gases are chemically indistinguishable from the hydrocarbons extracted from natural gas streams and are used for the same purposes.⁶ Approximately 70% of all propane and butane is produced at gas processing plants.

Ethane is an important petrochemical feedstock. Propane has a variety of uses, including crop drying and other agricultural purposes, as a refinery and petrochemical feedstock, and for residential or commercial heating and cooking, particularly in rural areas. Butane may be sold separately or be blended with propane and sold as liquified petroleum gas. Its major use is as a refinery blending agent for motor gasoline. It is also used as a feedstock for manufacturing petrochemicals.

Natural gasoline, like condensate, may be derived only from natural gas streams and not from crude oil. Natural gasoline is composed of nearly the same hydrocarbon components as ordinary motor gasoline, but in different proportions. It contains more of the lighter, more volatile hydrocarbons and is used as a blending agent in producing motor gasoline.

THE STATUTORY AND REGULATORY FRAMEWORK

It is undisputed that prior to the enactment of the EPAA in November, 1973, natural gas liquids, including condensate, were subject to governmental regulation under the Economic Stabilization Act of 1970. 12 U.S.C. § 1904 note. Section 203 of the Stabilization Act authorized the President to issue orders and regulations to "stabilize prices, rents, wages, and salaries . .." and to provide after public hearing "for the establishment of priorities of use and for systematic allocation of supplies of petroleum products including crude oil . . .."

The President by Executive Order had delegated that authority to the Cost of Living Council (COLC), and the COLC had promulgated Phase IV price regulations which applied to all "covered products". 6 C.F.R. Part 150, Subpart L, 38 Fed.Reg. 22536 (August 22, 1973). Covered products included all products described in the 1972 Standard Industrial Classification Manual Industry Code 1311 (except natural gas), 1321 or 2911. Code 1311 referred to production and extraction of crude petroleum and natural gas, 1321 referred to production and recovery of natural gas liquids, and 2911 referred to petroleum refining. Price regulation of natural gas liquids was covered by the broad definition of "refiner" in the regulations. The term included a firm that "refines liquid hydrocarbons from oil and gas field gases . . .." 6 C.F.R. § 150.132.

With regard to allocation regulations, the Government initially determined not to exercise its authority under the Stabilization Act. Instead, the Government encouraged the petroleum industry to cooperate in a voluntary allocation program. On May 21, 1973, the Office of Oil and Gas in the Department of Interior issued guidelines for the voluntary allocation of "crude oil and refinery products". 38 Fed.Reg. 13599 (May 23, 1973). The guidelines authorized the Office of Oil and Gas to "request each producer, crude oil buyer, gas plant operator, refiner, marketer, jobber and distributor to provide allocations for priority customers still unable to obtain needed supplies of crude oil and products". (Emphasis added).

In August, 1973, however, the Energy Policy Office (EPO)⁷ issued a notice of proposed rulemaking to adopt a "Mandatory Fuel Allocation Program". 38 Fed.Reg. 21797 (Aug. 13, 1973). The Program comprised Subpart A, a "Mandatory Allocation Program for Crude Oil," and Subpart B, a "Mandatory Allocation Program for Refined Petroleum Products and Liquified Petroleum Gases". The scope of Subpart B clearly embraced the allocation of the products of "gas plant operators". These regulations, however, were not adopted before the passage of the EPAA in November, 1973.

The EPAA, approved by the President on November 27, 1973, required the President to promulgate regulations for the mandatory allocation of "crude oil, residual fuel oil, and each refined petroleum product"⁸ within 15 days after enactment. The regulations were to take effect not later than 15 days after their promulgation. 15 U.S.C. § 753(a). The regulations were to achieve "to the maximum extent practicable" nine general objectives, including the following:

(A) protection of public health . . ., safety, and welfare (including maintenance of residential heating . . .), and the national defense;

(B) maintenance of all public services . . . ;

(C) maintenance of agricultural operations, including farming, ranching, dairy, and fishing activities, and services directly related thereto;

(D) preservation of an economically sound and competitive petroleum industry . . . ;

. . . . .

(F) equitable distribution of crude oil, residual fuel oil, and refined petroleum products at equitable prices among all regions and areas of the United States and sectors of the petroleum industry . . . ;

(G) allocation of residual fuel oil and refined petroleum products in such amounts, and in such manner as may be necessary for the maintenance of, exploration for, and production or extraction of—

(i) fuels, and

(ii) minerals essential to the requirements of the United States and for required transportation related thereto.

(H) economic efficiency; and

(I) minimization of economic distortion, inflexibility, and unnecessary interference with market mechanisms.

15 U.S.C. § 753(b)(1).

The President immediately established the Federal Energy Office (FEO), the predecessor of the FEA, and delegated to it his authority under the Act. He ordered the COLC to delegate its petroleum regulatory authority under the Stabilization Act to the FEO. Exec. Order 11748, 39 Fed.Reg. 33575 (Dec. 6, 1973). Pursuant to that delegation of authority, the FEO promulgated its Mandatory Petroleum Allocation and Price Regulations. 39 Fed.Reg. 1924 (Jan. 15, 1974). The price regulations it adopted merely carried forward the Phase IV price regulations of the COLC. The definitions of "covered product" and "refiner" under the FEO price regulation program were identical to the definitions in the COLC regulations. 10 C.F.R. § 212.31.

Prior to the expiration of...