Chairman of the US Federal Reserve Alan Greenspan warned Senators 11 July 2003 that the federal government can do little to bring down natural gas prices in the short term.
“I“m not aware of any sho…
Chairman of the US Federal Reserve Alan Greenspan warned Senators 11 July 2003 that the federal government can do little to bring down natural gas prices in the short term. “I“m not aware of any short-term expedients that can be employed at this stage to significantly alter the path that will occur in prices over the next six to nine months or a year,” Greenspan told members of the Senate Energy Committee. For the time being the weather will have the largest impact on gas prices, with a very hot summer or extreme winter both leading to increased demand from electricity generating companies, although at present the threat of price rises has receded. The benchmark price of natural gas dropped 5% on 10 July 2003 as stored gas levels increased. It is the second time that Greenspan has been called to Capitol Hill to discuss the economic impact of high gas prices. Greenspan maintained that the damage to-date has been minimal. He disagreed with the size of estimates by Stephen Brown, an economist with the Federal Reserve Bank“s Dallas branch. Brown had calculated that if gas prices remain at high levels, the nation“s gross domestic product could fall 0.6% to 2.1% below what it otherwise would have been. Greenspan said he was a “little surprised” by the size of those numbers, noting that because natural gas is largely a domestic industry, the price rise really represents a transfer of wealth from gas consumers to gas producers, “both in the United States.” Brown could not be reached for immediate comment. However, the high prices are making the United States “uncompetitive in a number of industries,” Greenspan said, adding that jobs will follow “the inevitable movement of gas-using productive capacity to foreign shores.” Dow Chemical, a heavy user of natural gas, has already transferred production from a petrochemical plant in Louisiana to Europe, where gas prices are at half the level seen in the United States. Huntsman, the world“s largest privately held chemical maker, has seen its gas costs jump USD 150 million to USD 200 million annually. To offset that cost “we“d have to fire half the people in our company,” Huntsman Chief Executive Officer Peter Huntsman said. For the year, natural gas prices are expected to average about USD 2 per thousand cubic feet or 68% more than last year, Assistant Energy Secretary David Garman told the panel. On 10 July 2003, gas futures for August delivery dropped USD 0.262 but still closed at a very strong USD 5.26 per thousand cubic feet. Gas prices fell 10 July 2003 after traders learned gas stocks had risen more than analysts expected. Supplies are now 25% less than at the same period in 2002. Greenspan gave little importance to suggestions the high prices are the result of market manipulation, noting, “the levels of natural gas prices we are now finding in our markets can be fully explained by the relative balances of supply and demand.” To help ease the gas problem in future years, Greenspan has called for an expansion of the United States“ ability to import liquefied natural gas, or LNG, from abroad. Known gas reserves in the former Soviet Union and the Middle East are huge, but LNG accounted for only about 1% of the nation“s gas supplies last year. While some Senators are unhappy about the nation becoming dependent on foreign sources of natural gas, just as it has with oil, Greenspan argued that importing gas represents “the ultimate safety valve.” Rather than being limited to a North American market, increasing these imports would allow the United States to become part of a world market. Greenspan“s emphasis on LNG imports was not what many gas producers and heavy gas users wanted to hear; they have been pressing both the Bush administration and lawmakers to allow greater access to exploit gas reserves on federal lands. Bruce Thompson, Forest Oil Co.“s executive director for public and industry affairs, argued that LNG imports are no quick fix. Analysts say it will take 10 years or more before these imports represent even 10% of U.S. supplies. Producers complain that much federal land, particularly in the Rocky Mountain region, is theoretically open for drilling, but the process of obtaining the required permits is so cumbersome as to make exploration all but impossible. William Whitsitt, president of the Washington-based Domestic Petroleum Council, says 130 drilling applications going back to the mid-1990s are still awaiting approval from regulators. Greenspan agreed that speeding up the permitting process would probably do more than anything else to bring new gas supplies to the market. However these proposals will not help resolve the immediate difficulties. Democrats on Capitol Hill have urged the Bush administration to launch an energy conservation initiative, similar to California“s efforts to discourage electricity use during the electricity crisis there two years ago. Greenspan“s testimony came less than three weeks before the Republican-led Senate is to resume consideration of an energy bill. The Republican-controlled House of Representatives has already approved its own energy legislation. On 10 July 2003, the House leadership announced the creation of a new task force to study the gas issue and report back to Speaker Dennis Hastert, (Republican, Illinois), by 30 September 2003.