Federal Reserve Chairman Alan Greenspan on Thursday said growing U.S. demand for natural gas to fuel factories and electricity plants may outweigh environmentalists’ desire to preserve wilderness areas that contain energy reserves.
A sharp rise in natural gas prices and an unusually low stockpile of the fuel has grabbed the attention of the Bush administration and lawmakers. As a result, Greenspan — whose appearances on Capitol Hill usually feature discussion of broad economic trends — was asked to testify at the Senate Energy Committee on the impact of high gas prices.
The Senate will resume debate on a broad energy bill later this month. The Bush administration and many Republicans want to allow drilling on more federal land in the Rocky Mountains, while Democrats and environmental groups support energy conservation and renewable fuels.
Commenting on the growing need for natural gas and the resulting environmental concerns, Greenspan said: “We’ve got to make those trade-offs. They are very difficult.”
“It is essential that one recognizes what the cost in energy policy is if you restrict the access to certain areas” that contain natural gas reserves, he said.
Natural gas prices in the wholesale spot market recently doubled from a year ago, rising to about $6 per million British thermal units (Btu). A cold winter drained inventories to a record low earlier this year, but the stockpile has steadily grown during the past month and is now only about 15 percent below normal.
The U.S. Energy Information Administration earlier this week noted the rise in stocks and forecast prices of $4.80-$5.10 per million Btu for the rest of 2003.
On Wednesday, congressional sources said House Speaker Dennis Hastert will appoint a panel of 18 lawmakers to recommend legislation needed to boost natural gas production.
As a backup for domestic production, Greenspan also called for a “major expansion” of facilities to import liquefied natural gas (LNG).
LNG is natural gas cooled to minus 259 degrees Fahrenheit, a process which converts it to liquid form for shipment. After shipping, it is converted back into gaseous form and moved into pipelines to users like industrial plants and utilities.
“I would much prefer that we met domestic consumption with effectively North American production,” Greenspan said. However, more LNG import terminals should be built as a back-up to U.S., Canadian and Mexican production, he said.
“LNG is the ultimate safety valve, even if we don’t use it,” Greenspan said. “Without the flexibility such (LNG) facilities will impart, imbalances in supply and demand must inevitably engender price volatility.”
Algeria, Nigeria, Trinidad, Russia and Venezuela are among current and potential exporters of LNG to the United States.
Some 14 LNG projects have been proposed for the U.S. market in recent months, including expansion of Georgia’s Elba Island terminal and new facilities off Louisiana, Texas, California, the Bahamas and Mexico.
Three LNG terminals now exist in Cove Point, Maryland; Lake Charles, Louisiana; and outside Boston.
ChevronTexaco Corp., ConocoPhillips, Marathon Oil Corp. , and Exxon Mobil Corp. have announced plans to make LNG a bigger part of operations.
U.S. demand for natural gas is forecast to top 35 trillion cubic feet (Tcf) by 2025, a jump of 52 percent from this year.
By Chris Baltimore, Reuters
