Oil prices to stay high, Greenspan predicts

Today’s high oil and gas prices most likely are here to stay and are putting the U.S. economy through an energy shock akin to — but smaller than — the one that transformed American life during the 1970s, Federal Reserve Chairman Alan Greenspan said yesterday.

Gasoline prices have climbed to record highs across the country as the price of oil and natural gas has doubled from levels that prevailed during the 1990s, the Fed chairman noted at a Center for Strategic and International Studies conference.

Although many consumers remain hopeful that the high energy prices will subside as they have in the past, Mr. Greenspan said all signs point to costs staying higher permanently and forcing individuals and businesses to strive for greater energy savings.

The rise in oil and gas prices reflects the growing scarcity of fuel, especially in North America, despite high demand, and the increased cost of extracting and refining what oil and gas is available for development, he said.

The higher cost of energy “is almost surely going to affect the growth of oil and gas consumption in the United States,” he said. Already, sky-high prices for natural gas have forced energy-intensive businesses that deal with chemicals and plastics to close plants and lay off thousands of workers.

But the sharply higher energy prices that have emerged since the 2001 recession are affecting more than big industrial users, Mr. Greenspan said.

Nearly every American business has made investment decisions assuming moderate energy prices, he said, and now are being forced to re-evaluate their strategies.

Many are having to postpone hiring and refocus their investments in light of the higher energy prices — adding to the job dearth of the past three years.

The crisis caused by the doubling of natural-gas prices since the 1990s has been particularly acute for American businesses and is “apt to continue to be challenging” because the United States does not have ready access to imported natural gas as it does with oil, he said.

Liquefied natural gas, which is costly to produce and raises environmental and safety concerns that go beyond those posed by shipments of oil, provides 2 percent of U.S. supplies.

There is much resistance to business efforts to build the terminals and pipelines needed to increase liquefied gas imports, he said, yet those supplies must grow rapidly to avert serious shortfalls.

Mr. Greenspan stressed that there is no severe threat to the economy right now from the energy adjustments — in part because oil and gasoline prices, adjusted for inflation, remain below their record highs.

“Although the effect of these developments on energy-related investments is significant, it doubtless will fall far short of the large changes in our capital stock that followed the 1970s surge in crude oil prices,” he said.

As Mr. Greenspan spoke, wholesale gasoline prices soared to a record high in New York trading, and oil prices spiked to $37.53 a barrel amid escalation of violence in Iraq and talk that the Organization of the Petroleum Exporting Countries (OPEC) will raise its oil price targets permanently to reflect a weaker dollar.

The oil minister for Saudi Arabia, the world’s largest oil producer, pledged to keep pumping whatever oil is needed to moderate prices and keep shortages from developing around the world.

Ali bin Ibrahim al-Naimi told the international conference that Saudi Arabia opened up the spigots a year ago when fears prompted by the Iraq war drove oil prices to 10-year highs.

Although Saudi Arabia and the United States have a shared and long-standing interest in nurturing world growth by keeping oil supplies plentiful and reasonably priced, Mr. Al-Naimi denied published reports that the kingdom has a pact with the Bush White House to lower oil prices ahead of the elections.

He repeated his contention that the high price of gas at American pumps is primarily the result of insufficient refining capacity in the United States and a “plethora” of federal and local environmental regulations that has “Balkanized” the U.S. gasoline market.

No refineries have been built in the United States since 1976, and none are planned because strict permitting and environmental requirements have pushed the cost per plant to $70 million to $100 million.

To prove it is ready to help lower gas prices, “Saudi Arabia is willing and ready to invest in two new refineries and their associated marketing facilities in the U.S.,” Mr. al-Naimi said.

Kyle McSlarrow, deputy U.S. energy secretary, took issue with the Saudi’s statement and said high crude prices also are to blame for high gasoline prices. He noted that oil prices have been well above OPEC’s target range of $22 to $28 a barrel all year.

“Refineries may be an element of it, fuel specifications may be an element,” he told the conference. “But we think the overwhelming factor here is crude oil prices,” which are so high that U.S. refiners have avoided adding to their stockpiles.

But with U.S. refineries operating at 90 percent of capacity, Mr. McSlarrow admitted more refineries are needed.

“We, of course, welcome investment in the United States,” he told Mr. al-Naimi. “If you can figure out the regulatory regime and get something permitted, good luck, and let us know how you did.”