Natural Gas on Capitol Hill
On Tuesday, June 10, Federal Reserve Chairman Alan Greenspan testified before Congress on Capitol Hill. Nothing unusual, right?
Well, Greenspan wasn’t in attendance to talk about monetary policy, inflation and interest rates. He was there to give his views on energy markets, specifically on natural gas.
Members of Congress just love trying to get Mr. Greenspan to go on record supporting their position on practically any issue. As the only economist seemingly on the planet that has garnered widespread respect on both sides of the political aisle, Greenspan’s seal of approval on economic views and policies is greatly valued.
This, apparently, includes developments relating to higher natural gas prices and possible remedies. Fortunately, Greenspan offered a good dose of economic common sense.
Spring storage of natural gas is at its lowest level since the government started keeping such records in 1976, according to a report from the Associated Press. While levels have started to recover some, they remain 38 percent below last year’s level and 28 percent below the five-year average. The price of natural gas – above $6 per million B.T.U.’s – is double last year’s price, and about three times where the price was during much of the 1990s. If this summer gets hot and/or the following winter quite cold, prices could easily spike even higher.
What’s the problem here? Well, there are a few.
Greenspan warned that the United States’ “limited capacity to import liquefied natural gas (LNG) effectively restricts our access to the world’s abundant supplies of gas.” He continued by pointing out that “rising demand for natural gas, especially as a clean-burning source of electric power, is pressing against a supply essentially restricted to North American production.” Having access to global supplies would steady and bring down prices. Greenspan called it a “price-pressure safety valve.”
The Fed chairman noted: “Access to world natural gas supplies will require a major expansion of LNG terminal import capacity. Without the flexibility such facilities impart, imbalances in supply and demand inevitably engender price volatility.”
In addition, Greenpsan pointed out: “There are still numerous unexploited sources of gas production in the United States.” However, government regulation and restrictions put much of that potential supply beyond reach. Energy exploration on federal lands is severely restricted, and the infrastructure to transport natural gas is limited due to government actions at the federal, state and local levels.
U.S. Rep. Billy Tauzin (R-LA), chairman of the House Energy Committee, was quoted in Investors Business Daily observing: “On the one hand, the federal government encourages the use of natural gas for a whole host of processes. On the other hand, the federal government restricts more and more public land to natural gas development.”
Clearly, the U.S. needs to establish an overall regulatory framework that is far friendlier to exploring, generating and transporting natural gas, and to expanding international trade.
However, more needs to be done. Most of the new power plants that have come on line in the U.S. in recent years are fired by natural gas. The U.S. needs greater energy diversity, which will help avoid shortages and price spikes. That means, for example, removing government-imposed obstacles to building coal-fired power plants, as well as nuclear facilities.
In particular, coal offers cheap, reliable power generation, which is a huge plus for consumers and business of all types and sizes. For good measure, coal power generation is increasingly clean.
The economic model for reliable, affordable energy is no mystery. It’s not about government subsidies, nor having a bunch of bureaucrats cobbling together a Soviet-style energy plan. Instead, it’s all about lifting onerous government burdens and restrictions, and letting the market work.
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Raymond J. Keating is chief economist for the Small Business Survival Committee, and co-author of U.S. by the Numbers: Figuring What’s Left, Right, and Wrong with America State by State (Capital Books, 2000).
