Federal News Service Transcript - Impact of High Natural Gas Prices on the Economy

Federal News Service

July 10, 2003 Thursday

HEADLINE: HEARING OF THE SENATE ENERGY AND NATURAL RESOURCES COMMITTEE
 
SUBJECT: IMPACT OF HIGH NATURAL GAS PRICES ON THE ECONOMY
 
CHAIRED BY: SENATOR PETE DOMENICI (R-NM)
 
LOCATION: 216 HART SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: ALAN GREENSPAN, CHAIR, FEDERAL RESERVE BOARD

SEN. CHARLES SCHUMER (D-NY): Thank you, Mr. Chairman. I again appreciate your erudition here.

First question I'd like to ask is this. There are—I know Senator Burns, while I was out—we had another hearing that touched on this, but I wanted to ask a little further. There are certain industries that are very dependent on natural gas. The chemical industry, for instance. And with the high costs of natural gas right now, even if we were to alleviate them five years from now, from what I understand, large parts of the chemical business will go offshore, never to return because it's a capital-intensive business. What can we do about that? Would you think that a certain set-aside of natural gas at a certain price for that industry would be worthwhile? I understand that's non-economic, but—having this industry leave and come back, you know, we do have externalities, we do have transaction costs that make certain non-economic things worthwhile. Could you talk about that for a little bit? Because it's something I worry about.

MR. GREENSPAN: Yeah, and it's something, if you do it, I worry about it, and I'll tell you why. (Light laughter.)

SEN. SCHUMER: Right.

MR. GREENSPAN: I have observed these types of solutions year after year, and they seem to work for one industry, and then you find that you're creating more problems for other industries. And I'm not certain if you put aside, say, some LNG storage selected strictly for the chemical industry, that that would make all that much difference, because they're thinking longer term. And unless they knew that there was a long-term solution here which brought the price of natural gas down to world-competitive levels, the mere existence of a short-term fix is not going to keep them here.

SEN. SCHUMER: Right. Well, let me modify the question. If we were to come up with a long-term solution, would this short-term solution also be a worthwhile thing to pursue?

MR. GREENSPAN: I, frankly, doubt it, but I --

SEN. SCHUMER: I didn't think you'd change your mind! (Laughs.)

MR. GREENSPAN: -- I would be—let's put it this way: I'm open to evidence on that question.

SEN. SCHUMER: Yeah. From what I'm told, for instance, it's a very small percentage of total natural gas use that has huge effects on an industry, a capital-intensive industry, that can't go back and forth very much. So I think you need both. I couldn't agree with you more. No one is going to—no one is going to be able to stay here if there's not a long-term solution. But, you know, if it were half of 1 percent of total domestic natural gas production and created a huge multiplier effect of things staying here, it's something I think worth considering.

MR. GREENSPAN: Senator, I would suggest that if your long-term solution was credible, that you don't need the short-term solution.

SEN. SCHUMER: Right. Okay. We'll see if we can some up with a long-term solution.

Next question I have is about conservation. We've talked mostly in this committee about new production, as have you. But—and I have not been adverse to new production. I don't—I'm not an ideologue on these things. I think we need some of each. But I do think that probably, if you gave a—if you did a bird's-eye view of our immediate problem, that some forms of conservation and efficiency might help alleviate the problem as quickly and as economically efficiently as new production. Do you disagree with that?

MR. GREENSPAN: No. If demand exceeds supply, you bring the gap down either by increasing supply or by decreasing demand.

SEN. SCHUMER: And do you have any adverse—I mean, you may, knowing you as much as I do and respecting—knowing you as well as I do and respecting you as much as I do. But certain governmental measures to increase that efficiency, would you necessarily rule those out, or would you just wait for the market to produce them?

MR. GREENSPAN: No, I think most of the action that probably would be helpful in this area is unwinding previous government regulations. But I don't deny that certain standards which you can set up could actually be effective in that regard.

SEN. SCHUMER: Good. Glad to hear that.

Next question is a little bit about the Rocky Mountain gas area, where I'm open to looking at it. I was one of the Democrats who voted to explore in the East Coast—in the East Gulf, much to the chagrin of my Florida colleagues. But I asked the environmentalists what was the problem with oil in the West Gulf; give me the environmental problems. There were virtually none. So I said, well, then we should be open—you know, we had a vote on opening some tract other.

SEN. : He did a great job.

SEN. SCHUMER: Yes, you would know better than me.

Well, the same thing on—same thing with the Rocky Mountains. I mean, there are some areas that we would not want to see touched; they're beautiful, they're pristine areas, National Parks, National Monuments. Then there are some areas which already are open to complete exploration. The rub occurs in what—the Level 2 areas, where there are some restrictions right now, but not prohibitions.

What would be your view of this? Do you—some—here is the basic argument. The people who—some people come in to me and say, the best thing we can do—we don't need to change those Level 2 areas, it's the Level 3 areas where you have production, you can make them more efficient, and that can happen on its own; that can most increase the production of natural gas, which we all agree we need. I mean, I just have to tell you, in New York state --

SEN. DOMENICI: (Sounds gavel.)

SEN. SCHUMER: Is my time up? I'm sorry, Mr. Chairman.

SEN. DOMENICI: It is.

SEN. SCHUMER: I apologize.

Do you think there's a greater chance of looking at existing places in the Rockies and just increasing the efficiency there, or changing the regulations—removing some of the regulations and going into the Level 2 areas, just in terms—not making the environmental (way/weight ?), that's our job, as you say; but in terms of bringing more gas quickly to the fore.

MR. GREENSPAN: I think that if you took a look at level two and you made the whole structure of regulation much easier and not as prolonged, you would bring down the risk premiums involved in new investment in those areas, which probably would create more than anything else you can do. I merely say that because, looking at the various different requirements that are involved to get permits, the risk premiums, even looking at that with the uncertainties and the arbitrariness of some of the things that go on, I think have got more—have got—the elimination of that has got more possibilities of getting effective production.

SEN. SCHUMER: Thank you, Mr. Chairman and Mr. Chairman.

SEN. DOMENICI: Thank you very much. And I was very pleased to hear your comment, Senator. I did not mean—I rattled by mistake. I wasn't trying to stop --

SEN. SCHUMER: You're applauding me! One of the real moments --

SEN. DOMENICI: Applauding. That's exactly --

SEN. SCHUMER: Thank you! (Laughs.)