Originally created 07/11/03

Greenspan: High natural gas prices affecting some industries



WASHINGTON -- Federal Reserve chairman Alan Greenspan said Thursday that high natural gas prices and shortages are already having an adverse impact on some industries, but as yet not much direct fallout to the overall economy.

But he predicted a loss of jobs in industries heavily dependent on natural gas as U.S. companies lose business to foreign competitors where energy is cheaper. And some economic fallout is likely to occur from higher heating prices next winter, he told a Senate hearing.

Greenspan predicted that tight natural gas supplies and high prices will be evident for some time.

"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 told a Senate hearing.

He said that development of new drilling technologies "have been unable to prevent the underlying long-term price of natural gas ... from rising."

Wholesale gas prices climbed to $6.58 per thousand feet last week, more than double what it had been last year. While declining somewhat, the price of gas for delivery in August was $5.51 on the New York Mercantile Exchange on Wednesday.

Greenspan, reiterating points he made last month in testimony at a House hearing, said the high prices are threatening some industries, such as chemical plants producing fertilizer, that use large amounts of natural gas.

"The perceived tightening of long-term demand-supply balances is beginning to price some industrial demand out of the market," said Greenspan, adding that "it is not clear whether those losses are temporary, pending a fall in price, or permanent."

Greenspan told the Senate Energy Committee that it remained difficult to assess the impact of higher gas prices on the overall economy, but that high energy prices are expected to cause some industries to lose business to foreign competitors.

"We do see 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," said Greenspan.

But he added, that hasn't happened yet.

Otherwise, he said, "you don't see all that much direct economic impact, except in households where you are going to clearly see significantly higher bills ... as we go into the winter" if, as expected, tight supplies and high prices persist.

As he has in the past, Greenspan called for an expansion of imports of liquefied natural gas to allow for an "ultimate safety valve" that would ease gas price volatility caused by tight supplies.

Greenspan agreed with Sen. Pete Domenici, R-N.M., the committee chairman, that there is little that the government can do in the short term to force down prices or increase supplies.

The futures market for natural gas suggests prices of more than $4.50 per thousand cubic feet are likely until at least 2009 and probably beyond, providing incentive for increased production. Such a price should spur development of a natural gas pipeline in Alaska, freeing large amounts of gas now penned up on the state's North Slope, suggested Greenspan when pressed on the issue by Sen. Lisa Murkowski, R-Alaska. .

An energy bill, now before the Senate, would provide tax breaks and price supports for a pipeline and Alaska gas. Greenspan, however, stopped short of endorsing such government help, saying foreseeable gas prices should support private investment in such projects.