Fed's Greenspan warns of continued US gas price vulnerability

New York (Platts)--3Nov2005

The environment for natural gas prices in the US this winter remains
precarious, and the likelihood of price spikes will remain into next spring,
outgoing Federal Reserve Chairman Alan Greenspan said Thursday.

     In testimony before Congress's Joint Economic Committee, Greenspan
linked the risks in the gas market to the lingering effects of Hurricanes
Katrina and Rita, each of which in some fashion disrupted production,
processing and distribution of the gas supply chain.

     Greenspan's statement before the committee, which was made available on
the Fed's website, also noted disruptions in the oil sector from the storms,
but he said that the impact was most pronounced on the gas sector since there
has not been readily replaceable supply as with oil.

     "The far-more-severe reaction of natural gas prices to the production
setbacks that have occurred in the Gulf highlights again the need to expand
our nation's ability to import natural gas," Greenspan said in his testimony.
"In contrast to the fall in crude oil prices and the sharp narrowing of
refinery margins during the past two months, natural gas prices have remained
high. Moreover, judging from elevated distant futures prices, traders expect
natural gas prices to edge lower but to stay high for the foreseeable future.
This expectation largely reflects a natural gas industry in North America that
is already operating at close to capacity and our inability to import large
quantities of far cheaper, liquefied natural gas from other parts of the
world. At present, natural gas supplies appear to be sufficient to meet the
near-term demands--even with some ongoing shortfall in Gulf production.
However, a colder-than-average winter would stress this market, and prices
will likely remain vulnerable to spikes until the spring."

     Greenspan said US imports of LNG "have been constrained by inadequate
global capacity for liquefaction, as well as by environmental and safety
concerns that have restricted the construction of new LNG import terminals" in
the US. And he warned that, given US Dept of Energy forecasts that LNG
imports this year at only 3% of gas consumption, and that "Canada, which has
recently supplied one-sixth of our consumption, cannot expand its pipeline
exports significantly in the near term."

                                 ---Robert DiNardo, robert_dinardo@platts.com

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