- The Washington Times - Wednesday, June 11, 2003

In congressional testimony last month, Federal Reserve Chairman Alan Greenspan warned the Joint Economic Committee that a “very serious problem” for some time had been afflicting the increasingly important natural gas sector of the nation’s energy industry. On Tuesday, Mr. Greenspan effectively told the House Energy and Commerce Committee that those problems were as much long-term as they were short-term.

Mr. Greenspan’s testimony suggested that there appears to be little that can be done in the short run to temper sharply increasing natural gas prices. A major part of the long-term solution, the Fed chairman made clear, would require changes in environmental regulations limiting the importation of natural gas from overseas.

With current working gas in storage at extremely low levels, the price of gas for July delivery ($6.31 per million Btu) is 150 percent higher than it was three years ago ($2.55) and nearly 75 percent higher than just a year ago ($3.65). Moreover, the futures market projects that prices are very likely to continue to increase through the summer cooling season and the winter heating season, perhaps as much as another 20 percent, which would take the price to three times the level three years ago. For the longer term, Mr. Greenspan declared that the natural gas market is “not apt to return to earlier periods of relative abundance and low prices anytime soon.”

Last month, in his testimony about the short-term economic outlook, Mr. Greenspan reported that the escalating price of natural gas was “pressing down” on “a number of industries which rely very heavily on natural gas.” They include the chemical, steel, aluminum and fertilizer industries. Unless their gas-price-induced “competitive weakness is addressed,” Mr. Greenspan warned Tuesday that “new investment in these technologies will flag,” no doubt causing further economic dislocations.

A major long-term problem relates to America’s extremely limited ability to import the abundant overseas natural gas supplies, which must be transported here in the form of liquefied natural gas (LNG). LNG imports accounted for only 1 percent of U.S. gas supplies in 2001. Canada, which provided a sixth of total U.S. consumption through pipelines, is unlikely to be able to increase its proportionate share because of its own needs.

With environmental regulations limiting the LNG import option, Mr. Greenspan declared that it was “essential that our policies be consistent.” While both short-term and projected long-term natural gas prices are soaring, Mr. Greenspan spelled out the consequences of our inconsistency. “[W]e cannot, on the one hand, encourage the use of environmentally desirable natural gas in this country while being conflicted on larger imports of LNG,” the Fed chairman rightly asserted. “Such contradictions are resolved only by debilitating spikes in price.”

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