Hearing of the Senate Energy and Natural Resources Committee

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)

WITNESSES: ALAN GREENSPAN, CHAIR, FEDERAL RESERVE BOARD
 
BODY:
SEN. LISA MURKOWSKI (R-AK): Thank you, Mr. Chairman.

Mr. Chairman, welcome. And thank you for your comments. I particularly appreciate your remarks regarding Alaska natural gas and our ability, I believe, to help address the shortages that we're facing as a nation.

I want to talk a little bit about energy security initially. I agree with your comments, when we're talking about LNG and imports, that world gas supplies are different than the world oil supplies. They're more spread out, and a recognition, I think to use your terms, they're more dispersed. And I think your comment was that as a energy security issue, it is not the same situation as with oil. But I think we need to recognize that those situations can change; and as we use our gas for feed stocks and electricity and heating, the international dynamics of some of our gas-rich nations can change.

Those countries that we might have good relationships with today might not necessarily maintain those good relationships 25, 30 years from now, and we may place ourselves in a situation where we are reliant on these countries who could be construed then as unsecure sources, but we've placed ourselves in a situation of reliance for our gas supplies as we have currently with oil. And I get concerned that as a country, we are moving towards a policy that could make us more dependent on foreign sources of gas as we currently are with foreign sources of oil.

So my question to you is, why, other than as a source of cheap gas, should we pursue a policy that will make us more dependent on foreign gas now when we do have the resources within our country to at least delay some of our dependence on foreign sources?

MR. GREENSPAN: Senator, for two reasons. First, I certainly agree with you that any commodity which we import is subject to insecure sources of supply. And indeed, over the years we have run into difficult problems.

I remember when we had platinum and palladium problems because it was very heavily a Soviet Union type of commodity and we would in some difficulty.

But the problem rests with the question of an overall policy. If we choose to emphasize environmentally efficient energy sources, which necessitates, by merely physics and chemistry of what we're dealing with, that we employ very significant amounts and growing amounts of natural gas, then the question is, we have to be prepared, if we don't wish to be dependent on any foreign natural gas, to make -- find ways of producing it internally.

We didn't have a problem in crude oil in this country up until about 1970 because we had shut-in capacity in the Texas Gulf. And indeed, the Texas Railroad Commission rationed the production of U.S. crude oil, and as a consequence of that, we found that we had far more capacity domestically than we needed. That changed, obviously, in 1970 and beyond.

But we've got that same sort of problem confronting us today in natural gas. If we can find a means to assure that we will have a surplus of gas and capped wells because of the excess supply versus the demand, or facilities of, say, very significant amounts of LNG storage, for example, we can function in this market with non-volatile or stable prices, low, internationally viable prices -- competitive prices, I should say; and a less volatile pattern of prices. But unless we can assure that, the fallback position is, in my judgment, only LNG. That doesn't mean that we need to have a significant base, as I indicated earlier, of LNG as a fundamental source of supply, but it does mean that, unless we create adequate domestic sources of supply.

So the way I look at it is, first of all, the degree of price volatility and spikes I would consider unacceptable; unacceptable in that you cannot invest in that type of environment for gas-using facilities, and it makes internal corporate planning exceptionally difficult. The only way to eliminate is to make sure that you have a safety valve in markets where inventories are very difficult to hold, and if you have that safety valve, then you will get smooth, non- volatile pricing, and a risk structure which enables competitive capital investment in gas-using establishments. However, if we cannot be sure we've got that, LNG is the ultimate safety valve, even if we don't use it.

And so my argument is that we have not exhibited in this country an obvious success in resolving a lot of these problems, and rather than say we shall do it, I think it would be far more sensible to assure ourselves at a minimum a back-up facility which will provide us in the event of need, and hope that that need is de minimus.

SEN. MURKOWSKI: Mr. Chairman --

SEN. DOMENICI: The senator's time is expired.

SEN. MURKOWSKI: Okay, I just want to get a comment on the Alaska LNG, and whether or not that was factored into -- when you discussed LNG imports, how Alaska LNG is being factored into the equation.

MR. GREENSPAN: Well, I think, Senator, as you know, the only -- there is a facility that produces LNG in Alaska, a big chunk of it being shipped to Japan. I would say to the extent that one can bring Alaska gas down through LNG to the lower 48, I would say that may very well turn out to be a highly profitable activity, and I would suspect that if you don't have regulations which inhibit the flow of capital, that's what's going to happen.

SEN. MURKOWSKI: Thank you, Mr. Chairman.