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Greenspan warns natural gas outlook { June 11 2003 }

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   http://www.nytimes.com/2003/06/11/business/11ENER.html

http://www.nytimes.com/2003/06/11/business/11ENER.html

June 11, 2003
Natural Gas Outlook Troubling Greenspan
By CARL HULSE

WASHINGTON, June 10 — The Federal Reserve chairman, Alan Greenspan, warned Congress today that short supplies and sharply rising costs of natural gas could eventually contribute to "erosion" in the economy. He said the United States should prepare to increase imports of the fuel, which is increasingly in demand.

At the same time, Mr. Greenspan said lawmakers should give new consideration to expanding the nation's capacity for nuclear power, a position narrowly embraced today by the Senate, which voted 50 to 48 to keep new federal loan guarantees for the construction of nuclear plants in an emerging energy bill.

"I do think an overall policy of energy cannot dismiss the issue of nuclear power," Mr. Greenspan told the House Energy and Commerce Committee in an appearance devoted mainly to the volatility in the natural gas markets.

He, along with other analysts and industry officials, painted a worrisome picture of low gas inventories because of the extended winter and prices hovering above $6 per million B.T.U.'s, double the level of a year ago but down from highs of more than $7 per million B.T.U.'s in March. Given the market situation, Energy Secretary Spencer Abraham on Monday called a natural gas summit meeting of the National Petroleum Council for June 26.

"We see a storm brewing on the horizon," said Representative Billy Tauzin, Republican of Louisiana and the chairman of the panel, who said that natural gas now fulfilled 23 percent of the nation's energy needs. "We need to prepare for it."

Some committee allies of the domestic oil and gas industry had hoped Mr. Greenspan might give them ammunition to press for new oil and gas drilling in coastal areas that have been put off limits because of objections from adjacent states.

But Mr. Greenspan instead focused on the need to increase the ability to import liquefied natural gas as a "safety valve" against flat domestic production of natural gas and rising demand. He said the nation should consider building terminals to accept deliveries of liquefied natural gas from other countries as the quickest way to address the supply needs. Four such terminals exist, and others are in development.

"Without the flexibility such facilities will impart, imbalances in supply and demand must inevitably engender price volatility," he said.

Mr. Greenspan also said the gas market was exposing a "weakened competitive position" for American industries that had counted on much lower energy prices. He said that while businesses could absorb higher prices for a period, they probably could not do so over a long term without economic consequences and job loss.

In response to concerns by lawmakers that the United States would be making itself reliant on natural gas imports just as it has done in the case of oil, Mr. Greenspan said the supplies of natural gas were relatively widespread rather than concentrated in the Middle East, as is the case with oil.

House members and industry officials said they hoped Mr. Greenspan's rare appearance to focus on a specific sector of the energy industry might give some momentum to energy legislation in the Senate.

Although the House adopted its energy measure in April, the Senate has been moving slowly, devoting much of last week to a fight over increasing the use of a corn-based gasoline additive. Debate has also been interrupted to allow consideration of a proposal to cut taxes and other legislation. It was to be cut off again after this week so the Senate could take up Medicare legislation.

But Senator Pete Domenici, Republican of New Mexico and the chairman of the Energy and Natural Resources Committee, predicted this week that the Senate would ultimately adopt a wide-ranging measure that provides new incentives for gas and oil production as well as incentives for the construction of plants for nuclear power and wind-generated energy.

"There is no doubt in my mind we will get a bill this year," he said in an interview. "The question is when. I think it is going to be earlier than you think."

Senator Domenici, an avid proponent of nuclear power, won a significant victory on the nuclear issue when the Senate rejected an attempt to strip the bills of provisions that opponents said would provide up to $16 billion in federal subsidies for six new nuclear plants. He said his proposal could "jump start" the nuclear power industry after years of stagnation.

Senator John E. Sununu, Republican of New Hampshire, who offered the amendment with Senator Ron Wyden, Democrat of Oregon, said that while he supported a diverse energy supply, commercial power plants "should be developed on a level playing field without government subsidizing one industry over others."

Though the House energy bill did not include a comparable nuclear program, Senator Domenici said he was determined that his approach would be included in the final measure.

Senators also adopted by a vote of 99 to 1 a proposal by Senator Mary Landrieu, Democrat of Louisiana, to require the president to develop a plan to decrease oil consumption by 1 million barrels of oil a day within a decade.

On Wednesday, the Senate was expected to debate a proposal to drop from the Senate bill a requirement that the Interior Department survey potential oil and gas resources off the nation's coasts. Opponents of oil drilling off Florida, California, New England and the Pacific Northwest view the plan as an effort to undermine longtime drilling bans covering those waters.

Prodded by House members on whether those protected areas should be opened up given the push to find new sources of natural gas, Mr. Greenspan said that was a judgment for Congress to make.

"There is no way to create energy without any risk," Mr. Greenspan said. "It is a question of choice."




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