- The Washington Times - Thursday, July 10, 2003

High natural gas prices are here to stay, and will push up home heating bills this winter and cause further job losses as U.S. industries are forced to move overseas where gas is cheaper, Federal Reserve Chairman Alan Greenspan warned yesterday.

In an unusual second congressional appearance aimed at highlighting the economic danger of chronic U.S. gas shortages, Mr. Greenspan advocated greatly increased imports of liquefied gas as the most realistic solution, along with the creation of strategic gas reserves to temper high and volatile prices.

“Today’s tight natural gas markets have been a long time in coming, and distant futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon,” the Fed chairman told the Senate Energy and Natural Resources Committee.

Wholesale gas prices soared to $6.58 per thousand feet on the New York Mercantile Exchange last week before declining to about $5.50 this week on news of cooler weather and increased inventories. But prices remain more than double what they were last year.

Even under the best of circumstances, American households will “see significantly higher bills” this winter, Mr. Greenspan said, echoing government and private forecasts that foresee an average increase of 19 percent in heating bills for consumers who use gas, mostly in the Northeast and Midwest.

The cost could be even higher, depending on the weather. Guy Caruso, an Energy Information Agency gas specialist, recently predicted gas prices would skyrocket and severely affect consumers this winter if the summer is only 10 percent warmer than usual and the winter is 10 percent colder than normal.

The persistently high energy costs also hurt businesses and have been cutting into productivity and profits, Mr. Greenspan said. He stressed that the problem is uniquely American, because the shortages are centered in the United States and Canada where the output of existing wells and new drilling are both on the decline.

“It’s not that we are looking at a world shortage of natural gas. It is a domestic problem,” he said, noting that consumers and businesses in Britain and Europe pay only half as much for gas because recent discoveries in Russia and the North Sea make it more plentiful there.

Mr. Greenspan warned of the “obvious loss of jobs that will go with the inevitable movement of gas-producing capacity to foreign shores, because it has made us largely uncompetitive in a number of industries in which gas is a critical input.”

An economic study prepared for the chemical industry estimates that 100,000 jobs will be lost or shipped overseas unless Americans start conserving more and bring gas prices down. Nevertheless, Mr. Greenspan said, the worst economic impact so far has been avoided.

“To date, the damage is still quiet minimal, with the obvious exclusion of the chemical industry, very specifically ammonia fertilizers and a number of petrochemical feedstock operations” that use gas as a raw material as well as an energy source, he said.

One benefit from high gas prices is that they have made it commercially feasible to tap into long-neglected natural gas reserves in Alaska.

Projects are under way now to bring Alaskan gas to users in the lower 48 states through pipelines and liquefied imports, Mr. Green-span noted, suggesting that further congressional incentives for such transport systems probably are not necessary.

While Mr. Greenspan continued to support increased drilling in the United States, Mexico and Canada to alleviate shortages, he seemed resigned that environmentalists are likely to win in the ongoing war over new drilling on government lands.

He also appeared to give little credence to hope that a rise in nuclear and coal-fired power could help to relieve the pressure on gas prices, noting that nearly all the new power plants coming on line in coming years will be fired by gas.

Because gas is plentiful elsewhere in the world, Mr. Greenspan placed more emphasis yesterday than he did in testimony a month ago on the need to increase liquefied imports, which would require considerable investment in expensive, specialized liquefaction plants and port facilities.

Liquefied natural gas “is likely to fulfill our basic needs” in the future, he said, calling it “the fallback position.”

“Given notable cost reductions for both liquefaction and transportation of LNG, significant global trade is developing,” he said. “And high gas prices projected in the American distant futures market have made us a potential very large importer.”

While increasing gas imports would make the United States more vulnerable to terrorist attacks and politically motivated boycotts, it would have the important benefits of bringing U.S. prices down to world levels and creating a worldwide market for gas much like the existing one for oil, he said.

“If North American natural gas markets are to function with the flexibility exhibited by oil, unlimited access to the vast world reserves of gas is required.”

Mr. Greenspan added that the United States should keep ample reserves of gas on hand, as it does with oil through the Strategic Petroleum Reserve, to provide a security cushion and help moderate wild swings in gas prices.


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