NPRA '05: Greenspan says mkt forces will curb energy costs

05 April 2005 21:18  [Source: ICIS news]

SAN ANTONIO, Texas (CNI)--Taking the long term view, the chief US government economist assured the petrochemicals industry Tuesday that market forces will work to keep energy costs reasonable.

 

Alan Greenspan, chairman of the board of Governors of the US Federal Reserve System (Fed), was concluding speaker at the International Petrochemical Conference (IPC)* here Tuesday.

 

He said increased energy demand and lagging additions to production have absorbed most of the slack that helped contain energy prices between 1985 and 2000.

 

The Fed chairman said: “Natural gas prices, seasonally adjusted, have not returned to their peak of last October, but remain significantly above the levels at year-end 2004.”  He said US dry gas production plus net imports have not expanded sufficiently over the past few years to prevent a marked rise in price.

 

“The inexorable rise in residential and utility use has priced the more marginal industrial gas users partially out of the market and has induced significant gains in gas efficiency among a number of gas users such as petroleum refineries, steel mills, and paper and board mills. Industrial gas use overall in the US has declined 12% since 1998.”

 

He said US gas prices historically have been more volatile than crude oil, partly because of the small global trade in natural gas.

 

“Over the past few years, notwithstanding markedly higher drilling activity, the US natural gas industry has been unable to noticeably expand production, or to increase imports from Canada. Significant pressure on prices ensued. North America's limited capacity to import liquefied natural gas (LNG) has effectively restricted our access to the world's abundant gas supplies.”

 

With little international trade to equalise prices across markets, Greenspan said US gas prices since late 2002 have been notably higher than prices abroad, putting pressure on ammonia and fertiliser manufacturers especially.

 

Greenspan said that although LNG imports met less than 3% of US demand last year, 32 import facilities are planned or proposed with capacity “far in excess of any pending needs". He noted the current US gas price is $7 per million Btu and more LNG imports would arbitrage that price down.

 

He said that higher gas prices could result in the production of significant gas reserves in Alaska and the Northern Territories of Canada.  It also would encourage the use of technology to improve recovery from existing gas fields and “unconventional” resources such as “tight sands” fields and coalbed methane.

 

He said: “In the decades ahead, natural gas and oil will compete in the US with coal, nuclear power, and renewable sources of energy. As the manner in which energy is produced and consumed evolves, it is not unreasonable to expect that, in the long run, the prices per unit of energy from various sources would tend to converge. At present, long-term futures prices for natural gas are, on a Btu-equivalent basis, notably less expensive than those for crude oil.”

 

He said: “The experience of the past 50 years - and indeed much longer than that - affirms that market forces play the key role in conserving scarce energy resources, directing those resources to their most highly valued uses."

 

“We must remember that the same price signals that are so critical for balancing energy supply and demand in the short run also signal profit opportunities for long-term supply expansion. Moreover, they stimulate the research and development that will unlock new approaches to energy production and use that we can now only scarcely envision,” he said.

 

*Sponsored by the National Petrochemical & Refiners Association (NPRA), the IPC ends today.

By: Patrick Crow
+1 713 525 2653

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