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| Greenspan: High oil prices here to stay |
| 2004-04-27 |
| Federal Reserve Chairman Alan Greenspan said Tuesday the likelihood of persistently high energy prices would probably help keep U.S. energy use in check and influence energy-related business investments. "The rise in six-year oil and (natural) gas futures prices is almost surely going to affect the growth of oil and gas consumption in the United States," Greenspan said in remarks prepared for a conference on energy security. In his speech, which did not touch on the current outlook for the U.S. economy or interest rates, the Fed chief said the "dramatic rise" in oil and natural gas prices in recent years suggested such elevated prices would prove to be the norm. "The recent shift ... has been substantial enough and persistent enough to influence business investment decisions, especially for facilities that require large quantities of natural gas," Greenspan said. "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, adding that the U.S. economy was much less energy-dependent than in the past. The Fed chief said the "dramatic rise" in oil and natural gas futures prices in recent years carried the potential to "significantly affect the long-term path of the U.S. economy." Greenspan said the U.S. must expand global trade in natural gas so further price spikes don’t harm the world’s largest economy, adding that high oil prices "presumably" reflected concerns over the potential for long-term supply disruption in the Middle East. He noted that market forces were as important a determinant of prices as the oil-producing OPEC cartel. "Although OPEC production quotas have been a significant factor in price determination for a third of a century, the story since 1973 has been as much one of the power of markets as of power over markets," Greenspan said. "The signals provided by market prices have eventually resolved even the most seemingly insurmountable difficulties of inadequate domestic supply in the United States," he added. Crude oil prices have been above the $22 to $28 target price range set by the Organization of Petroleum Exporting Countries for all but one working day since last November, with U.S. crude prices hovering near $38 a barrel in recent days. Saudi Oil Minister Ali al-Naimi told the conference earlier experts had underestimated oil demand in the first quarter. "There are signs that worldwide inventories have begun to build but no one really knows for sure," he said. At a meeting of finance ministers and central bankers from the Group of Seven nations over the weekend, Greenspan had said precautionary stock building was partly behind surging energy costs, according to French officials. In a statement at the conclusion of their talks, the G7 ministers heralded a building global economic recovery, but said further oil price rises posed a threat. He noted that worldwide imports account for 57 percent of global oil consumption but only 23 percent of natural gas consumption, meaning trade has room to grow in natural gas. As for the rise in natural gas futures prices, Greenspan pinned it on North American supply-and-demand issues. "Dramatic changes in technology in recent years, while making existing natural gas reserves stretch further, have been unable, in the face of inexorably rising demand, to keep the underlying long-term price for natural gas in the United States from rising," Greenspan said. "If North American gas markets are to function with the flexibility exhibited by oil, more extensive access to the vast world reserves of gas is required,’’ he said in his remarks. As he has on numerous occasions, Greenspan said the United States should increase the number of port facilities that can handle liquefied natural gas. "Without the flexibility that such facilities impart, imbalances in supply and demand must inevitably engender price volatility," he said. Greenspan welcomed signs that a "major expansion" of U.S. natural gas import facilities was under way, but said: "The near term, however, is apt to continue to be challenging." |
| Posted by:Mark Espinola |
| #2 Because of the difficulty of transporting it (You need a lot of infrastructure), natural gas can be purchased for close to a zero price in many (most?) places in the world. |
| Posted by: Phil_B 2004-04-27 10:28:13 PM |
| #1 The U.S. natural gas supply is nearly all from domestic sources. A very small portion of US natural gas consumed is imported from Canada. An extremely small proportion is liquefied natural gas (LNG). LNG importing facilities are extremely limited at present. The increase in LNG import facilities needs to be "vast". These natural gas facts are little known, and always omitted from discussion of energy prices and whether or not to allow more domestic well drilling. This article hints at the situation, but doesn't state it well. |
| Posted by: Tresho 2004-04-27 10:11:50 PM |