Greenspan Discusses Natural Gas Woes

The Fed chief says the rise in natural gas prices has become a burden for U.S. businesses.
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Federal Reserve

Chairman Alan Greenspan said the rise in natural gas prices has become a burden for U.S. businesses, and suggested that it could become a strain on households by winter.

"The updrift and volatility of the spot price for gas have put significant segments of the North American gas-using industry in a weakened competitive position," Greenspan said Thursday in testimony before the Senate. "Unless this competitive weakness is addressed, new investment in these technologies will flag."

Moreover, Greenspan indicated that U.S. households could face higher heating prices this winter. Natural gas prices have risen from $2 per million British thermal units in 1997 for delivery in 2000 to more than $4.50 for delivery in 2009. That is the crude oil equivalent of rising from less than $12 a barrel to $26 a barrel.

"Improved technologies have been unable to prevent the underlying long-term price of natural gas in the U.S. from rising," said Greenspan. "This is observed in markets for natural gas where contract delivery is sufficiently distant to allow new supply to be developed and brought to market."

Greenspan said that high gas prices were particularly worrisome for industries using big amounts of natural gas. The Fed head doesn't see relief in sight: "The perceived tightening of long-term demand-supply balances is beginning to price some industrial demand out of the market," said Greenspan. "It is not clear whether these losses are temporary, pending a fall in price, or permanent."

According to Greenspan, an expansion of import capability for natural gas to the U.S. is necessary.

"Without the flexibility such facilities will impart, imbalances in supply and demand must inevitably engender price volatility," he said, supporting efforts to increase access to gas supply.