No Easy Fix to Natural Gas Woes, Greenspan Warns

By J.R. Pegg

WASHINGTON, DC, July 10, 2003 (ENS) - There is very little Congress can do to alter the tight natural gas market, Federal Reserve Board Chairman Alan Greenspan told the Senate Energy Committee today. Although the higher natural gas prices many in Congress are concerned about have thus far had a minimal impact on the nation's economy, Greenspan said, individual households are likely to feel the pain of those higher prices this winter.

"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," Greenspan said. "We are going to clearly see significantly higher bills for households as we go into the winter if the futures markets in fact are a correct forecast of the spot market."

For many years, natural gas was discarded as worthless, and oil companies got rid of it by burning it off in giant flares.

But today natural gas provides one-fifth of all the energy used in the United States and demand is outpacing supply. The Energy Information Administration estimates natural gas consumption will increase 60 percent by 2020. Greenspan

The Senate Energy Committee turned to Federal Reserve Board Chairman Alan Greenspan for advice on what to do about high natural gas prices. (Photo courtesy U.S. House of Representatives)
Last winter's cold weather drew down reserves of natural gas and caused prices to spike at more than $6.50 per thousand cubic feet in early June. Prices have fallen since - to $5.51 per thousand cubic feet - as inventories have improved, but there is widespread concern about both the effects of higher gas prices.

Greenspan said the long term solution to the problem rests with increasing the nation's capacity to import liquefied natural gas (LNG) as well as increasing domestic production. The United States imports about 18 percent of its natural gas from Canada, but only one percent of U.S. gas supply is imported as LNG.

Ensuring there is adequate infrastructure for importing LNG - which is natural gas cooled into liquid form for transport - is the "ultimate safety valve," Greenspan said.

Some senators expressed concern that importing LNG will put the nation at risk from insecure suppliers, but Greenspan says there are a range of possible LNG suppliers and that access to the world market natural gas market is the best way to limit the possibility of volatile price spikes.

"Markets need to be able to effectively adjust to unexpected shortfalls in domestic supply," he told the committee.

It is the domestic supply of natural gas that is proving a contentious issue and despite a slew of leading questions, Greenspan did not offer the senators any clear guidance on what they should do.

He told the committee that while he would "much prefer that we met domestic consumption with effectively North American production" there are problems in endeavoring to do that.

Much of the nation's natural gas reserves are on public land or offshore and there is opposition by conservationists and others to opening some of these reserves to production.

Decisions about whether to further open public lands and offshore areas currently restricted to gas development depend on how the nation chooses to balance economic and environmental interests, Greenspan said.

"There is a very fundamental value that all human beings are attracted to and that is the pristine nature of wilderness," Greenspan said. "On the issue of pristine wilderness versus economics, there is no tradeoff. The only tradeoff is in human beings making that value judgment of what it is they want and it is up to the Congress to try to reflect that."

Colorado Senator Ben "Nighthorse" Campbell, a Republican, said that environmental opposition and lawsuits have inhibited domestic production, a view shared by the Bush administration and others in Congress.

This week, House Speaker Dennis Hastert formed a task force of 18 Republican lawmakers to craft legislation to increase domestic production and the Bush administration's newly formed Rocky Mountain Energy Council convened for the first time to discuss how it can remove barriers to domestic production on Western federal lands.

There is a disconnect, Campbell and others said, between encouraging the use of natural gas - which is considered a clean burning fuel - and restricting access to supplies.

But conservationists point to a report released in January by the administration that showed that 88 percent of natural gas resources on Western federal lands are already available for development.

The Senate is also eyeing the natural gas resources found offshore - the Senate energy bill calls for a comprehensive inventory of the nation's offshore oil and gas resources. offshore

The Outer Continental Shelf currently accounts for some 27 percent of domestic natural gas production. (Photo courtesy U.S. Minerals Management Service)
Critics of the measure fear it is the first step toward lifting a 20 year ban on offshore drilling in many of the nation's coastal waters and could harm the environment and the economies of affected coastal states.

Since 1982, Congress has prevented the Interior Department from conducting leasing, pre-leasing and related activities in the moratorium areas, which include waters along the East and West coasts, as well as some waters off the coast of Alaska and within the Gulf of Mexico.

Opponents of the survey and lifting the moratorium note that 80 percent of the nation's undiscovered, economically recoverable Outer Continental Shelf gas is located in the Central and Western part of the Gulf of Mexico, which is currently not subject to the moratorium.

"No matter how many areas within the United States that are made available for drilling and whatever the adverse environmental consequences, we will inevitably have to import more gas to meet anticipated and future demand," said Dave Alberswerth of The Wilderness Society.

And any new supply will take years to impact the supply, say conservationists, who want to see the administration and the Congress aggressively embrace renewable energy and energy efficiency measures.

The administration this week launched a new awareness campaign to encourage the public to take steps to improve energy efficiency and Greenspan acknowledged that energy efficiency is an important step to take for the short term.

There was little mention by committee members of the role of renewable energy in reducing demand for natural gas, but Committee Chairman Pete Domenici, a New Mexico Republican, said diversifying the nation's fuel mix should focus on nuclear power and coal.

A key reason demand for natural gas has jumped over the past decade is that it can be used to produce electricity without the harmful emissions of coal or the hazardous waste produced by nuclear reactors. But the nation has an estimated 250 year supply of coal and the world's largest nuclear industry and those energy sources are tempting targets for lawmakers.

Several senators expressed concern about the longterm impact to jobs and the economy - in particular to the petrochemical industry. Chemical companies that use natural gas to make fertilizer have been hit hard by the price increases, said Louisiana Senator Mary Landrieu, a Democrat, and this could also begin to affect the agricultural industry.

"This is really a hearing on jobs in America," said Landrieu.

But the Federal Reserve Chairman cautioned the Senate not to use tax credits - or other mechanisms - to interfere with the market in an attempt to fix the natural gas situation.

"If we allow competition far more sway in our markets, I think we would find much cheaper, more productive solutions," he told the committee.

When asked if the government should subsidize an Alaskan LNG facility or a natural gas pipeline from Alaska's North Slope to the lower 48 states, Greenspan balked.

"I do not believe one needs to encourage that," Greenspan said. "With long term prices at $4.50, profitability is quite adequate [for the industry] to do that."

Greenspan downplayed concerns by some that prices of natural gas were being manipulated, but acknowledged that price "manipulation is something very difficult to ferret out."