Under a Texas statute regulating production and use of natural
gas, "sweet" gas --
i.e., gas containing not more than 1
1/2 grains of hydrogen sulphide per 100 cubic feet, and therefore
suitable for heating and lighting -- may not be used for the
manufacture of carbon black; but that substance may be manufactured
from "sour" gas --
i.e., gas containing a greater percent
of hydrogen sulphide, not suitable in its natural state for heating
and lighting. As applied to a company producing or otherwise
acquiring "sweet" gas in the Panhandle field for which it had no
market other than to sell for manufacture of carbon black,
held:
1. The evidence does not sustain the contention that the
prohibition will not operate to conserve "sweet" gas, as intended,
but will serve only to deprive the complainant of the gas to which
it is entitled, such contention being based on the hypothesis that
the gas, if not extracted by the company, will wander
subterraneously to a "sour" gas area of the field, and become
"sour" gas. P.
300 U. S.
264.
2. There is no basis in the evidence for holding the
classification of "sweet" and "sour" gas arbitrary upon the
hypothesis that the hydrogen sulphide may be removed from the
latter at trifling expense. P.
300 U. S.
264.
Page 300 U. S. 259
3. There is no basis in the evidence for the contention that the
statute discriminates unreasonably by preventing the plaintiff and
others in like position from extracting "sweet" gas and selling it
for the only purpose available, and by suffering it to drain away
meanwhile only to augment the supplies of "sour" gas producers. P.
300 U. S.
265.
4. The evidence does not support the objection that the statute
discriminates illegally by prohibiting the use of sweet gas in
carbon black manufacture, while permitting its use as fuel by
manufacturers of other articles. P.
300 U. S.
266.
5. The effect of the statute upon the contracts of the company
for taking "sweet" gas from producers and delivery to a carbon
black manufacturer is merely incidental, and does not violate the
Texas Constitution.
Travelers' Insurance Co. v. Marshall,
124 Tex. 45; 76 S.W.2d 1007, distinguished. P.
300 U. S.
266.
6. In case of doubt, and in the absence of definitive
construction by the state courts, this Court defers to the lower
federal court's understanding of the state constitution. P.
300 U. S.
266.
7. The needs of conserving gas in a natural gas field are to be
determined by the legislature; the prohibition of the use of
"sweet" gas in the manufacture of carbon black is not shown in this
case to be an arbitrary exercise of legislative power.
Walls v.
Midland Carbon Co., 254 U. S. 300. Pp.
300 U. S. 264,
300 U. S.
267.
14 F.
Supp. 328 affirmed.
Appeal from a decree of the District Court of three judges
denying a permanent injunction in a suit to restrain enforcement of
a Texas statute, c. 120, Acts of 1935, and orders of the Railroad
Commission thereunder, relative to the use of natural gas in the
manufacture of carbon black. The lower court's opinion on an
application for a preliminary injunction is reported in 12 F. Supp.
519.
See also Thompson v. Gas Utilities Corp., ante p.
300 U. S. 55.
Page 300 U. S. 260
MR. JUSTICE BRANDEIS delivered the opinion of the Court.
The question for decision is whether the prohibition by Texas of
the use of sweet natural gas for the manufacture of carbon black in
the Panhandle field is valid.
The suit is brought in the federal court for western Texas by
the Henderson Company, a Maine corporation. It challenges the
validity of the following provisions of Chapter 120 of the Acts of
the Legislature of Texas, 1935, Forth-Fourth Regular Session,
commonly known as House Bill 266: subdivisions (g) and (h) of § 2,
which define sweet and sour gas; [
Footnote 1] subdivision (j) of § 3, which prohibits the
use of sweet gas for the manufacture of carbon black; [
Footnote 2] and subdivision (1) of § 7,
which defines the purposes for which sweet gas may be used.
[
Footnote 3]
See Thompson
v. Consolidated Gas Utilities Corp., ante, p.
300 U. S. 55. The
suit challenges also the validity of orders entered by the Railroad
Commission pursuant to the statute.
Page 300 U. S. 261
The Henderson Company owns and operates in the Panhandle gas
field a casinghead gasoline plant which is connected with 21 gas
wells, holds oil and gas leases under which some of these wells are
operated, and is under contract to take gas from the other wells.
Prior to the statute, it received at its plant the gas from all
these wells, extracted therefrom the gasoline content, and had
contracted to supply the residue gas to the Combined Carbon
Company. The orders challenged classified fourteen of the wells as
sweet gas wells and prohibited both taking the gas therefrom for
the purpose of processing the same for its gasoline content and
delivery of the residue for the manufacture of carbon black. The
seven remaining wells, classified as sour, cannot furnish the
quantity of gas required by the company in its gasoline plant and
to perform its contract with the Carbon Company. A supply from
other sour gas wells is not available, and, for the gas from the
fourteen wells classified as sweet, there is no other use.
The bill charges that the statute and the orders entered
thereunder violate the Federal Constitution -- the due process and
equal protection clauses of the Fourteenth Amendment and the
Contract Clause (Article I, § 10, cl. 1); also provisions of the
Constitution of Texas. The members of the Commission and the
Attorney General of Texas are made defendants.
Page 300 U. S. 262
The relief sought is to enjoin enforcement of the statute
temporarily and permanently.
The jurisdiction, federal and equitable, was not questioned.
Answers were filed. An application for a restraining order was
denied. That for a preliminary injunction, promptly heard before
three judges, was also denied, 12 F. Supp. 519. And, on final
hearing upon an extensive record, a decree was entered denying the
permanent injunction and dismissing the bill,
14 F.
Supp. 328. Findings of fact and conclusions of law were filed
in compliance with Equity Rule 70 1/2. The case is here on
appeal.
The findings contain, as in
Thompson v. Consolidated Gas
Utilities Corp, a description of the character and the
development of the Panhandle gas field. In the western field, the
sweet gas zone lies to the south, occupying about two-thirds of it;
the sour gas zone lies to the north, and occupies about one-third.
Plants which strip the gas of its gasoline content and carbon black
plants which use the residue are apparently accessible to both
zones. For those purposes, either sweet or sour gas can be used.
For the sweet gas of the Panhandle field, there is also a large
demand for fuel and light. For the sour gas in its natural state,
there is practically no use other than in the stripping and the
carbon black plants. There are 29 carbon black plants in the
Panhandle field. These produce more than 70 percent of all carbon
black manufactured in the United States, and they consume, on the
average, about 550,000,000 cubic feet per day. Intolerable waste
had resulted by use of sweet gas under permits issued by the
Railroad Commission under Chapter 100, Acts 1933, Forty-Third
Legislature, Regular Session, which allowed the use of sweet gas
for inferior purposes where there was no fuel and light market. It
was primarily to prevent such waste that the Legislature
prohibited, by House Bill
Page 300 U. S. 263
266, the use of sweet gas in the manufacture of carbon
black.
The court found, among other things:
"There is enough sour gas in reserve in the Panhandle field to
fulfill the world's requirements of carbon black for many years to
come. There is also a tremendous supply of casinghead gas in the
Panhandle field. There is now available for use in the manufacture
of carbon black sufficient allotments under the orders of the
Railroad Commission of sour and casinghead gas to supply all the
demands and needs of such plants with an excess of 100,000,000
cubic feet of casinghead gas over and above the demand of the
carbon black plants."
". . . A producer of sweet gas, if he is able to market the same
for light and fuel purposes, receives about three or four cents per
1000 cubic feet in the field. When such gas is delivered at the
burner tips, it sells for various greater amounts. The producers of
gas who sell to the companies who strip it and burn it for carbon
black receive less than a cent per 1000 cubic feet."
The company contends that our decision in
Walls v. Midland
Carbon Co., 254 U. S. 300,
which upheld certain action of Wyoming in prohibiting as wasteful
the use of natural gas for the production of carbon black, is
inapplicable to the issues here presented. The company concedes
that Texas may, for the purpose of preventing waste, regulate both
the production and the use of natural gas. It does not deny that,
when one natural resource is fitted for two uses and another
resource only for one, the Legislature has the power to marshal
these resources by classifying them, and designating the uses to
which each may be put. Nor does it deny that the classification and
the limitation of the use of sweet gas may, "when considering all
of the gas fields in Texas as a whole, bear a reasonable relation
to the purposes sought
Page 300 U. S. 264
to be accomplished." But it insists that, as applied to the
Panhandle field, the classification and prohibition are void,
because there they bear no reasonable relation to the object sought
to be attained, and are arbitrarily discriminatory.
First. The contention that, in the Panhandle field, the
prohibition of the use of sweet gas in the manufacture of carbon
black is arbitrary and unreasonable rests primarily upon the fact
that the sour and the sweet gas wells are in the same reservoir.
The argument is that pressures in the sour gas area are lower than
those in the sweet gas area; that, since there is no free market
for sweet gas for fuel and light, it will, if not used in carbon
black manufacture, and if withdrawals of sour gas are permitted to
the extent of the requirements of the carbon black industry,
migrate into lower pressure areas and become a part of the sour gas
supply; that therefore the supply of sweet gas will not be
conserved, and that the effect of the prohibition of its use in the
manufacture of carbon black will be merely to deprive the company,
through the migration, of the gas to which it is entitled. But the
lower court found that the length of time required for such
migration is not definitely known, and that the demand for sweet
gas for fuel and light is increasing. The needs of conservation are
to be determined by the Legislature.
See Walls v. Midland
Carbon Co., 254 U. S. 300,
254 U. S. 324.
The loss of sweet gas by migration may be relatively negligible.
The court concluded that there is "an abundance of factual support
for the legislative prohibition against the burning of sweet gas
for carbon black." No facts have been found, or established by the
evidence, which would justify us in pronouncing the action of the
Legislature arbitrary.
Second. The company insists, also, that the prescribed
prohibition is void because the difference between sweet gas and
sour is solely the presence in the latter of a
Page 300 U. S. 265
quantity of hydrogen sulphide; that, by processing, the sulphide
can be eradicated from sour gas at a slight expense, and that the
sour gas, when so purified, is fit for use for fuel and light. The
distinction between sweet and sour gas, fixed by the Legislature at
1 1/2 grains of hydrogen sulphide per 100 cubic feet, is found by
the court to be apt. The evidence as to the cost of purifying is
widely conflicting. The cost might depend, among other things, upon
the extent of the sulphur content. The classification made has
ample support in the evidence. We are unable to find in the
regulation anything arbitrary or unreasonable.
Compare Lindsley
v. Natural Carbonic Gas Co., 220 U. S. 61,
220 U. S. 78;
Walls v. Midland Carbon Co., supra, 254 U. S.
324.
Third. The company contends that the provisions of the
statute as applied discriminate unreasonably between it and other
producers similarly situated. The statute applies equally to all
sweet gas wells. The discrimination suggested is in favor of the
sour gas well owners. The argument is that the company has now no
fuel and light market for its sweet gas; that gas may drain into a
sour well, and, if it does, will become sour and be usable in the
manufacture of carbon black. It is not known when the expected
drainage will occur. Long before that time, there may be a fuel and
light market for the company's sweet gas. It is also urged that the
statute discriminates illegally by prohibiting the use of sweet gas
in carbon black manufacture, while permitting its use as fuel by
manufacturers of other articles. There are several differences
which would justify the classification. Among them, this: the daily
average consumption of the 29 carbon black plants is only slightly
less than the average daily amount taken by the pipelines for fuel
and light purposes. For the carbon black plants in the Panhandle
field, the sour gas there affords an ample supply. For the fuel
uses served by the interstate pipelines, sweet gas is practically
indispensable.
Page 300 U. S. 266
Compare Ohio Oil Co. v. Indiana (No. 1), 177 U.
S. 190,
177 U. S. 211;
Walls v. Midland Carbon Co., supra, 254 U. S. 317,
254 U. S.
322-324.
Fourth. The company claims that the statute impairs the
obligation of contracts, since it prohibits performance of the
company's contracts with producers to take sweet gas for its
stripping plant and its contract to deliver the residue after
stripping to the Combined Carbon Company. The contention is that
the contract clause of the Texas Constitution, unlike that of the
Federal Constitution, prevents the State from enacting a police
measure which will result in impairing a contract. In support of
that proposition, the company cites
Travelers' Ins. Co. v.
Marshall, 124 Tex. 45, 76 S.W.2d 1007, decided by the Supreme
Court of Texas in 1934. But that case does not support the
proposition. The statute there held void was a moratorium statute
specifically directed against the terms of contracts. The statute
here challenged is not directed against any term of any contract.
It deals merely with the use of an article of commerce, and its
effect upon contracts is incidental. The distinction was pointed
out by the district court, which said that the Constitution of the
State of Texas
"has never been held to avoid a police statute dealing directly
with physical things in the interest of the public welfare, and
touching contractual relationships only incidentally as they may
have attached to those physical things prior to the passage of the
statute."
14 F.
Supp. 328, 334. That ruling accords with constitutional
doctrine long established in this and other courts. If we felt any
doubt as to its application here, in the absence of a definitive
construction of the Constitution of the State by its highest court,
we should defer to the federal court's understanding of the state
law.
See Thompson v. Consolidated Gas Utilities Corp,
supra.
Fifth. The contention that our decision in the
Walls case is inapplicable is rested in part on the
difference,
Page 300 U. S. 267
as to the title to gas in place, between the law of Wyoming and
that of Texas. It is urged that, in the absence of waste, the
legislature lacks power to regulate production in Texas, since
there, the law gives the owner of land title to the gas in place
and to that which migrates to formations under his land, whereas,
in Wyoming, regulation for the purpose of protecting correlative
rights of other owners in a common pool is permissible. Upon this
argument we need not pass. One principle established by the
Walls case is that the Legislature may, for the purpose of
conserving natural resources, regulate their production and use.
The findings of the district court in this case support the
reasonableness of the present statute on that basis. It is also
urged that there is this vital difference in the facts: that, in
the Panhandle field, the challenged prohibition will not prevent
waste or conserve the supply of sweet gas, since the sweet gas, if
not used, will drain into the sour gas area because of the lower
pressures there. Moreover, it is insisted that, unlike the
Walls case, there is here in the record convincing
evidence that the use of sweet gas in the manufacture of carbon
black is not wasteful. Our decision in that case rested upon no
particular theory of the nature of the carbon black industry. It
was based simply upon the determination that the statute in
question was not shown to have been an arbitrary exercise of
legislative power. Such, likewise, is our judgment here.
Affirmed.
[
Footnote 1]
"Sec. 2."
"
* * * *"
"(g) The term 'sour gas' shall mean any natural gas containing
more than one and one-half (1 1/2) grains of hydrogen sulphide per
one hundred (100) cubic feet or more than thirty (30) grains of
total sulphur per one hundred (100) cubic feet, or gas which in its
natural state is found by the Commission to be unfit for use in
generating light or fuel for domestic purposes."
"(h) The term 'sweet gas' shall mean all natural gas except
'sour gas' and 'casinghead gas.'"
[
Footnote 2]
"Sec. 3. The production, transportation, or use of natural gas
in such manner, in such amount, or under such conditions as to
constitute waste is hereby declared to be unlawful, and is
prohibited. The term 'waste', among other things, shall
specifically include:"
"
* * * *"
"(j) The use of sweet gas produced from a gas well for the
manufacture of carbon black."
[
Footnote 3]
"Sec. 7. After the expiration of ten (10) days from the time of
encountering gas in a gas well, no gas from such well shall be
permitted to escape into the air, and all gas produced therefrom
shall be utilized for the following purposes:"
"(1) No sweet gas shall be utilized except for:"
"(a) Light or fuel."
"(b) Efficient chemical manufacturing, other than the
manufacture of carbon black."
"(c) Bona fide introduction of gas into oil or gas bearing
horizon in order to maintain or increase the rock pressure or
otherwise increase the ultimate recovery of oil or gas from such
horizon."
"(d) The extraction of natural gasoline therefrom when the
residue is returned to the horizon from which it is produced."